Potential Output in a Commodity‐Exporting Economy

Nadine Yamout

The Economic Record, 2022, vol. 98, issue 320, 42-62

Abstract: The surge in global demand for natural resources has driven the terms of trade in commodity‐exporting economies to historically high levels. A critical question is how the upswing in commodity prices influences these economies' potential output. I estimate the potential output and output gap that are consistent with a small open economy model featuring a commodities sector and study the implications of permanent commodity price changes on potential output and output gap. Following a 70 per cent permanent commodity price increase, the output gap improves on impact but deteriorates afterwards, falling to −0.75 per cent in the transition.

Date: 2022
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