Which measure of aggregate output should we use?

Aggregate output is a focal point of macroeconomics. In the empirical literature, a number of variables are used as a proxy for aggregate output. In this paper, we compare the temporal behavior of four monthly measures of aggregate output: namely GDP, ICI, IP, and XCI. These four measures of output are found to have a common long-run permanent component but distinct short-run cyclical patterns. The monetary effects on each of these four output variables are used to illustrate the implications of the choice of an output measure on empirical research. It is found that test results can be driven by the choice of the proxy for aggregate output.