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Estimating Potential Output And The Output Gap For Brazil

Author

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  • Carlos Hamilton Vasconcelos Araujo
  • Marta Baltar Moreira Areosa
  • Osmani Teixera de Carvalho Guillén

Abstract

This paper aims to estimate output gap for Brazilian economy through di.erents methodolies. We use traditional univariate techniques and propose a new semi-estructural methodology that combines HP filtering and the production function approach. In order to compare the di.erent potential output estimates, we use a Phillips curve to predict free price inflation and a rolling forecast experiment as a test of forecast accuracy. Our results shows that the forecasts produced by the Local level and Watson models are even more inaccurate than those generated by the simplest univariate models. The main evidence is that the Beveridge-Nelson methodology outperforms all the models at all forecast horizons.

Suggested Citation

  • Carlos Hamilton Vasconcelos Araujo & Marta Baltar Moreira Areosa & Osmani Teixera de Carvalho Guillén, 2004. "Estimating Potential Output And The Output Gap For Brazil," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32nd Brazilian Economics Meeting] 041, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
  • Handle: RePEc:anp:en2004:041
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    File URL: http://www.anpec.org.br/encontro2004/artigos/A04A041.pdf
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    References listed on IDEAS

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    1. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
    2. Tommaso Proietti & Alberto Musso & Thomas Westermann, 2007. "Estimating potential output and the output gap for the euro area: a model-based production function approach," Empirical Economics, Springer, vol. 33(1), pages 85-113, July.
    3. Athanasios Orphanides & Simon van Norden, 2002. "The Unreliability of Output-Gap Estimates in Real Time," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 569-583, November.
    4. Fabio Araujo & Marta Baltar Moreira Areosa & José Alvaro Rodrigues Neto, 2003. "r-filters: a Hodrick-Prescott Filter Generalization," Working Papers Series 69, Central Bank of Brazil, Research Department.
    5. Joel Bogdanski & Alexandre Antonio Tombini & Sergio R. Da C. Werlang, 2001. "Implementing Inflation Targeting in Brazil," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 1-23, January-J.
    6. Ehrmann, Michael & Smets, Frank, 2003. "Uncertain potential output: implications for monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 27(9), pages 1611-1638, July.
    7. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2001. "One Decade of Inflation Targeting in the World: What Do We Know and What Do We Need to Know?," NBER Working Papers 8397, National Bureau of Economic Research, Inc.
    8. Alan S. Blinder, 1997. "Distinguished Lecture on Economics in Government: What Central Bankers Could Learn from Academics--And Vice Versa," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 3-19, Spring.
    9. Sergio Afonso Lago Alves, 2001. "Evaluation of the Central Bank of Brazil Structural Model's Inflation Forecasts in an Inflation Targeting Framework," Working Papers Series 16, Central Bank of Brazil, Research Department.
    10. Kichian, Maral, 1999. "Measuring Potential Output within a State-Space Framework," Staff Working Papers 99-9, Bank of Canada.
    11. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    12. Watson, Mark W., 1986. "Univariate detrending methods with stochastic trends," Journal of Monetary Economics, Elsevier, vol. 18(1), pages 49-75, July.
    13. Michael F. Bryan & Stephen G. Cecchetti, 2001. "A Note on the Efficient Estimation of Inflation in Brazil," Working Papers Series 11, Central Bank of Brazil, Research Department.
    14. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    15. St-Amant, P. & van Norden, S., 1997. "Measurement of the Output Gap: A Discussion of Recent Research at the Bank of Canada," Technical Reports 79, Bank of Canada.
    16. Marcelo Kfoury Muinhos & Sergio Afonso Lago Alves, 2003. "Medium-Size Macroeconomic Model for the Brazilian Economy," Working Papers Series 64, Central Bank of Brazil, Research Department.
    17. Iris Claus, 1999. "Estimating potential output for New Zealand: a structural VAR approach," Reserve Bank of New Zealand Discussion Paper Series DP2000/03, Reserve Bank of New Zealand.
    18. Sweta Chaman Saxena & Valerie Cerra, 2000. "Alternative Methods of Estimating Potential Output and the Output Gap; An Application to Sweden," IMF Working Papers 00/59, International Monetary Fund.
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    Cited by:

    1. Arruda, Elano Ferreira & Ferreira, Roberto Tatiwa & Castelar, Ivan, 2011. "Modelos lineares e não lineares da curva de Phillips para previsão da taxa de Inflação no Brasil," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 65(3), September.
    2. Leandro Nascimento Brito & Elcyon Caiado Rocha Lima, 2008. "Inflação e Nível de Atividade no Brasil: Estimativas via Curva de Phillips," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807211039560, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. Elaine Cristina de Piza & Joilson Dias, 2006. "Novo Consenso Macroeconômico E Política Monetária No Brasil: Uma Avaliação Empírica," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 164, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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