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

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  • Rodríguez, Gabriel

    ()
    (Central Reserve Bank of Peru and Pontificia Universidad Católica 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.

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Bibliographic Info

Paper provided by Banco Central de Reserva del Perú in its series Working Papers with number 2009-011.

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Date of creation: Apr 2009
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Handle: RePEc:rbp:wpaper:2009-011

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Keywords: Potential Output; Core Inflation; NAIRU; Latent Variables; Investment;

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  3. Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band Pass Filter," NBER Working Papers 7257, National Bureau of Economic Research, Inc.
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  17. Robert J. Gordon, 1996. "The Time-Varying NAIRU and its Implications for Economic Policy," NBER Working Papers 5735, National Bureau of Economic Research, Inc.
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Cited by:
  1. Alejandro Gaviria Jaramillo & Santiago Téllez Alzate, 2010. "Expectativas de inflación en Colombia," VNIVERSITAS ECONÓMICA 008299, UNIVERSIDAD JAVERIANA - BOGOTÁ.

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