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Authorized for public release by the FOMC Secretariat on 1/12/2024 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM DIVISION OF RESEARCH AND STATISTICS Date: May 30, 2018 To: Federal Open Market Committee From: David Wilcox Subject: Improvements to the Staff Judgmental Estimation of the Output Gap The attached memorandum, prepared by Stephanie Aaronson, Gianni Amisano, Andrew Figura, Charles Fleischman, and Paul Lengermann, members of the Division of Research and Statistics, culminates a process that has been in progress for several years to improve our method for judgmentally estimating the output gap. At the center of the new process is the recognition that every real-world economic indicator is measured with error. In particular, no single real-world variable infallibly reveals where the macroeconomy currently stands relative to its sustainable position. Instead, building on research by Charles Fleischman and John Roberts, the approach we have been moving toward over the past several years aims to generate the sharpest possible inference about the cyclical position of the economy by combining the information contained in multiple different indicators in a statistically efficient manner. If you have any questions about the approach described in the attached memo, please feel free to contact either me or any of the memo authors. Page 1 of 1
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