Mind the gap: Computing finance-neutral output gaps in Latin-American economies

Juan S. Amador-Torres, Jose Gomez-Gonzalez, Jair Ojeda-Joya, Oscar F. Jaulin-Mendez and Fernando Tenjo-Galarza
Authors registered in the RePEc Author Service: J. Sebastián Amador-Torres ()

Economic Systems, 2016, vol. 40, issue 3, 444-452

Abstract: We compute a measure of the finance-neutral potential output for Colombia, Chile and Mexico. Our methodology is based on Borio et al. (2013, 2014) and incorporates the cycle of credit, house prices and the real exchange rate in the computation of the output gap. The literature on business cycles in emerging market economies, particularly papers focusing on Latin American economies, has highlighted the importance of including shocks to the interest rate in world capital markets together with financial frictions, terms of trade fluctuations, and a procyclical government spending process. Our results show that around the financial crises of the 1990s the finance-neutral output gap behaved differently than the traditional measures observed by policymakers. In particular, gaps are higher before crises and lower after them.

Keywords: Potential output; Financial cycle; Asset prices; Kalman filter (search for similar items in EconPapers)
JEL-codes: E44 E47 E52 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Mind the Gap: Computing Finance-Neutral Output Gaps in Latin-American Economies (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:40:y:2016:i:3:p:444-452

DOI: 10.1016/j.ecosys.2015.09.007

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