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Output gaps and stabilisation policies in Latin America: The effect of commodity and capital flow cycles

Author

Listed:
  • Enrique Alberola

    (Bank for International Settlements, Switzerland and Mexico)

  • Rocio Gondo

    (Bank for International Settlements, Switzerland and Mexico)

  • Marco Lombardi

    (Bank for International Settlements, Switzerland and Mexico)

  • Diego Urbina

    (Bank for International Settlements, Switzerland and Mexico)

Abstract

We provide a measure of the output gap that filters out the impact of the commodity and net capital inflows booms for Latin American countries. These two factors temporarily boost output and so are likely to push up estimates of potential growth in the region to unrealistic levels, thereby resulting in an underestimation of the output gaps during the upswing of the commodity cycle. We also shed light on the interaction between the two components. The results show that commodity prices have been the dominant factor explaining deviation of activity from sustainable levels. A timely consideration of these factors could prevent a procyclical fiscal policy bias in the region.

Suggested Citation

  • Enrique Alberola & Rocio Gondo & Marco Lombardi & Diego Urbina, 2017. "Output gaps and stabilisation policies in Latin America: The effect of commodity and capital flow cycles," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 35(82), pages 40-52, April.
    • Handle: RePEc:bdr:ensayo:v:35:y:2017:i:82:p:40-52
    DOI: 10.1016/j.espe.2016.11.003
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    More about this item

    Keywords

    Brecha de producción; Precio de las materias primas; Flujos de Capital; Prociclicidad; Política fiscal; Latinoamérica;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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