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Estimation of Potential Output for Costa Rica. 1995-2021

Author

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  • Adolfo Rodríguez-Vargas

    (Department of Economic Research, Central Bank of Costa Rica)

Abstract

The potential output of an economy is an unobservable variable whose evolution is closely monitored by policymakers. To deal with estimation uncertainty, at the Central Bank of Costa Rica potential output is estimated by a combination of methodologies: a production function approach and two statistical methods. In this note we present an updating of the potential output for Costa Rica using the GDP data based on the structure of the economy for the reference year 2017 and taking into account data from 1995 up to the years of the COVID-19 pandemic. The results suggest that the Costa Rican economy is labour-intensive, in line with previous studies, and that the average rate of growth for potential output would be 3,8% for the 2021-2027 period. We estimate that the COVID-19 pandemic temporarily reduced potential growth to 0,6% during 2020. The resulting output gap is useful for modelling inflation. ***Resumen: El producto potencial es una variable no observable cuya evolución es de sumo interés para la conducción de la política económica. Dado que su estimación está sujeta a incertidumbre, en el Banco Central de Costa Rica el producto potencial se estima mediante una combinación de metodologías: una función de producción y dos métodos estadísticos. En esta nota se presenta una actualización de la estimación del producto potencial para Costa Rica con los datos de producción basados en la estructura productiva de la economía en 2017, la estimación comprende desde el año 1995 y considera el período de pandemia por COVID-19. Los resultados sugieren que la economía costarricense en intensiva en capital humano, en línea con resultados de estudios anteriores, y que la tasa promedio de crecimiento del potencial sería de 3,8% para el período 2021-2027. Se estima que la pandemia por COVID-19 redujo temporalmente la tasa de crecimiento del potencial a 0,6% durante 2020. Además, la brecha de producto resultante es útil para modelar la inflación.

Suggested Citation

  • Adolfo Rodríguez-Vargas, 2022. "Estimation of Potential Output for Costa Rica. 1995-2021," Notas Técnicas 2203, Banco Central de Costa Rica.
    • Handle: RePEc:apk:nottec:2203
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    File URL: https://repositorioinvestigaciones.bccr.fi.cr/handle/20.500.12506/363
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    References listed on IDEAS

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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