Real time representation of the UK output gap in the presence of model uncertainty

We undertake an empirical analysis of the UK output gap using real-time data and an approach that accommodates, in a coherent way. three types of uncertainty when measuring the gap. These are model uncertainty (associated with the choice of model and de-trending technique), estimation uncertainty (with a given model) and measurement uncertainty (associated with the reliability of the data). The approach employs VAR models, along with Bayesian-style 'model averaging' procedures, to jointly explain and forecast real-time measures and realisations of output series. A comprehensive representation of the UK output gap and the associated uncertainties are provided in real time by probability forecasts over 1961q2 - 2005q4. (C) 2008 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.