Estimating Output Gap, Core Inflation, and the NAIRU for Peru

Gabriel Rodríguez

No 2009-011, Working Papers from Banco Central de Reserva del Perú

Abstract: Following Doménech and Gómez (2006), and using quarterly Peruvian data for 1970:1-2007:4, I estimate a model that exploits the information contained in the inflation, unemployment and private investment rates in order to estimate non-observable variables as output gap, the NAIRU and the core inflation. The unknown parameters are esti- mated by maximun likelihood using a Kalman filter initialized with a partially difuse prior, and the unobserved components are estimated using a smoothing algorithm. The results suggest that only the infla- tion rate contains useful information in order to estimate the output gap. Estimates suggest poor performance for the unemployment and private investment rates. I explain this issue as related to the poor quality of the construction of these variables. In order to perform a sensitivity analysis, I estimate the output gap using other alternative methods. The correlations are very different and very far away from the estimates obtained in this paper. It is clear that estimates obtained from simple statistical filters give poor approximations.

Keywords: Potential Output; Core Inflation; NAIRU; Latent Variables; Investment (search for similar items in EconPapers)
JEL-codes: C22 C32 C52 E31 E32 (search for similar items in EconPapers)
Date: 2009-04
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (1)

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