Estimating the Output Gap for Chile

Rodrigo Fuentes, Fabián Gredig and Mauricio Larrain

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: In this paper we estimate the output gap and the growth rate of potential output in Chile for the 1986-2005 period, using three different methods: (i) a production function approach, (ii) a Kalman filter approach (univariate and multivariate), and (iii) a structural vector autoregression (SVAR). A high degree of consistency was found among all measures in terms of the sign of the output gap. According to all methods, economic overheating is observed at the beginning of the sample; from 1993 until the Asian Crisis the gap is not very large but is always positive, after the Asian Crisis the gap measures show a smooth tendency to a level close to zero. In order to compare the output gaps generated under the different methodologies, we evaluate the real-time performance of the output gap measures and measure how well the output gap can help forecast future inflation. Regarding the potential output growth, the methods yield broadly similar estimations. Over the complete sample, the average potential growth rate is around 5.6%. However, there seems to be important differences across sub-periods, particularly the growth rate is below the average in the period after the 1999 recession.

Date: 2007-12
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:455

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