IDEAS home Printed from
   My bibliography  Save this paper

Estimating the Output Gap for Chile


  • Rodrigo Fuentes
  • Fabián Gredig
  • Mauricio Larraín


In this paper we estimate the output gap and the growth rate of potential output in Chile for the 1986-2005 period, using three different methods: (i) a production function approach, (ii) a Kalman filter approach (univariate and multivariate), and (iii) a structural vector autoregression (SVAR). A high degree of consistency was found among all measures in terms of the sign of the output gap. According to all methods, economic overheating is observed at the beginning of the sample; from 1993 until the Asian Crisis the gap is not very large but is always positive, after the Asian Crisis the gap measures show a smooth tendency to a level close to zero. In order to compare the output gaps generated under the different methodologies, we evaluate the real-time performance of the output gap measures and measure how well the output gap can help forecast future inflation. Regarding the potential output growth, the methods yield broadly similar estimations. Over the complete sample, the average potential growth rate is around 5.6%. However, there seems to be important differences across sub-periods, particularly the growth rate is below the average in the period after the 1999 recession.

Suggested Citation

  • Rodrigo Fuentes & Fabián Gredig & Mauricio Larraín, 2007. "Estimating the Output Gap for Chile," Working Papers Central Bank of Chile 455, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:455

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-368, July.
    2. 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.
    3. Francisco Gallego & Norman Loayza, 2002. "The Golden Period for Growth in Chile. Explanations and Forecasts," Central Banking, Analysis, and Economic Policies Book Series,in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Economic Growth: Sources, Trends, and Cycles, edition 1, volume 6, chapter 13, pages 417-464 Central Bank of Chile.
    4. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    5. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
    6. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
    7. Clark, Todd E. & West, Kenneth D., 2007. "Approximately normal tests for equal predictive accuracy in nested models," Journal of Econometrics, Elsevier, vol. 138(1), pages 291-311, May.
    8. F. OğunC & D. Ece, 2004. "Estimating the output gap for Turkey: an unobserved components approach," Applied Economics Letters, Taylor & Francis Journals, vol. 11(3), pages 177-182.
    9. Rómulo A.Chumacero & Francisco A.Gallego, 2002. "Trends and cycles in real-time," Estudios de Economia, University of Chile, Department of Economics, vol. 29(2 Year 20), pages 211-229, December.
    10. Michael Graff, 2004. "Estimates of the output gap in real time: how well have we been doing?," Reserve Bank of New Zealand Discussion Paper Series DP 2004/04, Reserve Bank of New Zealand.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Felipe Morandé & Mauricio Tejada, 2009. "Sources of Uncertainty in Conducting Monetary Policy in Chile," Central Banking, Analysis, and Economic Policies Book Series,in: Klaus Schmidt-Hebbel & Carl E. Walsh & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy under Uncertainty and Learning, edition 1, volume 13, chapter 12, pages 451-509 Central Bank of Chile.
    2. Arturo Antón-Sarabia, 2008. "El problema al final de la muestra en la estimación del PIB potencial," Working papers DTE 442, CIDE, División de Economía.
    3. Donal McGettigan & Kenji Moriyama & Jean F Noah Ndela Ntsama & Francois Painchaud & Haonan Qu & Chad Steinberg, 2013. "Monetary Policy in Emerging Markets; Taming the Cycle," IMF Working Papers 13/96, International Monetary Fund.
    4. International Monetary Fund, 2010. "Chile; Selected Issues Paper," IMF Staff Country Reports 10/299, International Monetary Fund.
    5. Natalia Gallardo & Andrés Sagner, 2010. "Valorización por Arbitraje de Bonos y Acciones Chilenas Mediante el Método de Componentes Principales," Working Papers Central Bank of Chile 557, Central Bank of Chile.
    6. Felipe Morandé L. & Mauricio Tejada G., 2008. "Sources of Uncertainty in Monetary Policy Conduct in Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 11(3), pages 45-80, December.
    7. International Monetary Fund, 2014. "Russian Federation; Selected Issues," IMF Staff Country Reports 14/176, International Monetary Fund.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chb:bcchwp:455. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.