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Estimating and Projecting Potential Output Using Structural VAR Methodology: The Case of the Mexican Economy

Author

Listed:
  • Alain DeSerres,
  • Alain Guay
  • Pierre St-Amant

Abstract

In this paper the authors show how potential output can be estimated and projected through an approach derived from the structural vector autoregression methodology. This approach is applied to the Mexican economy. To identify demand, supply and world oil shocks, the authors assume that demand shocks do not have a permanent effect on output and that the international price of oil is exogenous to the Mexican economy in the long term. They then calculate potential output by adding the world oil and supply components to the drift in output. They find that world oil shocks have been an important source of both actual and potential output fluctuations over a sample period extending from 1965 to 1994. However, they also find occurrences of important gaps between actual and potential output. Dans la presente etude, les auteurs montrent qu'il est possible d'estimer et de prevoir le niveau de production potentielle en utilisant une approche derivee de la methode structurelle d'autoregression vectorielle. Cette approche est appliquee dans la modelisation de l'economie mexicaine. Pour identifier les chocs de demande et d'offre et les chocs de prix mondiaux du petrole, les auteurs font l'hypothese que les chocs de demande n'ont pas d'effet permanent sur la production et que les cours mondiaux du petrole sont exogenes a l'economie mexicaine a long terme. Ils calculent la production potentielle en ajoutant les composantes des prix petroliers et de l'offre a la derive de la production. Les auteurs constatent que les chocs de prix mondiaux du petrole ont ete une cause importante de variations de la production observee et potentielle au cours de la periode 1965-1994, mais decouvrent egalement d'importants ecarts entre la production observee et potentielle.

Suggested Citation

  • Alain DeSerres, & Alain Guay & Pierre St-Amant, "undated". "Estimating and Projecting Potential Output Using Structural VAR Methodology: The Case of the Mexican Economy," Staff Working Papers 95-2, Bank of Canada.
  • Handle: RePEc:bca:bocawp:95-2
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    References listed on IDEAS

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    Cited by:

    1. Martha Misas & Carlos Esteban Posada, 2000. "Crecimiento y Ciclos Económicos en Colombia en el Siglo XX: El aporte de un VAR Estructural," Borradores de Economia 155, Banco de la Republica de Colombia.
    2. Proietti, Tommaso, 1999. "Structural Time Series Modelling of Capacity Utilisation," MPRA Paper 62621, University Library of Munich, Germany.
    3. Pierre St-Amant, 1996. "Decomposing U.S. Nominal Interest Rates into Expected Inflation and Ex Ante Real Interest Rates Using Structural VAR Methodology," Macroeconomics 9602004, EconWPA.
    4. Ashwin Madhou, 2015. "Demystifying output gap pressure through surveys in a monetary analysis setting: an experimental perspective," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Indicators to support monetary and financial stability analysis: data sources and statistical methodologies, volume 39 Bank for International Settlements.
    5. Hassan, Syeda Anam & Zaman, Khalid, 2012. "Effect of oil prices on trade balance: New insights into the cointegration relationship from Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2125-2143.
    6. Butler, L, 1996. "The Bank of Canada's New Quarterly Porjection Model Part 4 : A Semi- Structural Method to Estimate Potential Output : Combining Economic Theory with a Time-Series Filter," Technical Reports 77, Bank of Canada.
    7. Ben Smit & Le Roux Burrows, 2002. "Estimating potential output and output gaps for the South African economy," Working Papers 05/2002, Stellenbosch University, Department of Economics.
    8. Houda Ben Hadj Boubaker, 2011. "Inflation Forecast-Based Rule for Inflation Targeting: Case of Some Selected MENA Countries," Working Papers 628, Economic Research Forum, revised 09 Jan 2011.
    9. Murray, John & Schembri, Lawrence & St-Amant, Pierre, 2003. "Revisiting the case for flexible exchange rates in North America," The North American Journal of Economics and Finance, Elsevier, vol. 14(2), pages 207-240, August.
    10. Robert A. Amano, "undated". "Empirical Evidence on the Cost of Adjustment and Dynamic Labour Demand," Staff Working Papers 95-3, Bank of Canada.
    11. José Ronaldo de Castro Souza Júnior, 2005. "Produto Potencial: Conceitos, Métodos de Estimação e Aplicação à Economia Brasileira," Discussion Papers 1130, Instituto de Pesquisa Econômica Aplicada - IPEA.
    12. Mark S Astley & Tony Yates, 1999. "Inflation and real disequilibria," Bank of England working papers 103, Bank of England.
    13. 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.
    14. José Ignacio Castillo Manzano & Fernando González Laxe & Lourdes López Valpuesta, 2006. "Una Introducción al Análisis del Tráfico de Contenedores mediante los Vectores Autoregresivos," Economic Analysis Working Papers (2002-2010). Atlantic Review of Economics (2011-2016), Colexio de Economistas de A Coruña, Spain and Fundación Una Galicia Moderna, vol. 5, pages 1-23, January.
    15. J. Stan Metcalfe & John Foster, 2010. "Evolutionary Growth Theory," Chapters,in: Handbook of Alternative Theories of Economic Growth, chapter 3 Edward Elgar Publishing.
    16. Jeannine Bailliu & Daniel Garcés & Mark Kruger & Miguel Messmacher, 2003. "Explaining and Forecasting Inflation in Emerging Markets: The Case of Mexico," Staff Working Papers 03-17, Bank of Canada.
    17. Pierre St-Amant, 1996. "Decomposing U.S. Nominal Interest Rates into Expected Inflation and Ex Ante Real Interest Rates Using Structural VAR Methodology," Macroeconomics 9602004, EconWPA.

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