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Alternative Estimates of Output Gap for the Argentine Economy

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Author Info

  • Pedro Elosegui

    (Central Bank of Argentina)

  • Lorena Garegnani

    ()
    (Central Bank of Argentina)

  • Luis Lanteri

    ()
    (Central Bank of Argentina)

  • Francisco Lepone

    (Central Bank of Argentina)

  • Juan Sotes Paladino

    (Central Bank of Argentina)

Abstract

The analysis of the output gap dynamics (the difference between the observed and the non-inflationary potential output) is a widely used tool for structural models employed by central banks. In such models, the output gap is a key variable to explain the dynamics of prices and wages. However, despite its potential as a relevant variable for policy decision-making, both the potential output and the output gap are not directly observable. For this reason, it is necessary to develop a strategy that may allow to improve its estimation using alternative methodologies. This paper describes several methodologies to estimate the potential output and the output gap for the Argentine economy. In particular, a method based on a neoclassical production function is described. Likewise, the paper includes estimates of the potential output constructed through different univariate and multivariate methods such as “State-Space” (Kalman filtering), multivariate Hodrick-Prescott (HP) filter and structural VAR. The final purpose of the paper is to give the Central Bank several tools to estimate such variable, and also evaluate their relative performance by considering their capacity to predict inflation evolution.

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Bibliographic Info

Article provided by Central Bank of Argentina, Economic Research Department in its journal Ensayos Económicos.

Volume (Year): 1 (2006)
Issue (Month): 45 (October)
Pages: 45-77

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Handle: RePEc:bcr:ensayo:v:1:y:2006:i:45:p:45-77

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Related research

Keywords: Argentina; HP filter; Kalman filter; output gap; potential output; production function method; structural VAR;

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  1. Sweta Chaman Saxena & Valerie Cerra, 2000. "Alternative Methods of Estimating Potential Output and the Output Gap," IMF Working Papers 00/59, International Monetary Fund.
  2. Paul Conway & Ben Hunt, 1997. "Estimating potential output: a semi-structural approach," Reserve Bank of New Zealand Discussion Paper Series G97/9, Reserve Bank of New Zealand.
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