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Mind the Gap: Computing Finance-Neutral Output Gaps in Latin-American Economies

Author

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  • Amador-Torres, Juan
  • Gómez González, Jose
  • Ojeda-Joya, Jair
  • Jaulin-Mendez, Oscar
  • Tenjo-Galarza, Fernando

Abstract

We compute a measure of the finance-neutral potential output for Colombia, Chile and Mexico. Our methodology is based on Borio et al (2013, 2014) and incorporates the cycle of credit, house prices and the real exchange rate on the computation of the output gap. The literature on business cycles in emerging market economies, particularly papers focusing on Latin American economies, has highlighted the importance of including shocks to the interest rate in world capital markets together with financial frictions; terms of trade fluctuations; and a procyclical government spending process. Our results show that around the financial crises of the 1990s the finance-neutral output gap behaved differently than the traditional measures observed by policymakers. In particular, gaps are higher before crises and lower after them.

Suggested Citation

  • Amador-Torres, Juan & Gómez González, Jose & Ojeda-Joya, Jair & Jaulin-Mendez, Oscar & Tenjo-Galarza, Fernando, 2015. "Mind the Gap: Computing Finance-Neutral Output Gaps in Latin-American Economies," MPRA Paper 66288, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:66288
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    Cited by:

    1. Enrique Alberola-Ila & Rocío Gondo & Marco Jacopo Lombardi & Diego Urbina, 2016. "Output gaps and policy stabilisation in Latin America: the effect of commodity and capital flow cycles," BIS Working Papers 568, Bank for International Settlements.
    2. Gabor Katay & Lisa Kerdelhué & Matthieu Lequien, 2020. "Semi-Structural VAR and Unobserved Components Models to Estimate Finance-Neutral Output Gap," Working Papers 2020-11, Joint Research Centre, European Commission.
    3. Amador-Torres, J. Sebastián, 2017. "Finance-neutral potential output: An evaluation in an emerging market monetary policy context," Economic Systems, Elsevier, vol. 41(3), pages 389-407.
    4. 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 República, vol. 35(82), pages 40-52, April.
    5. repec:bdr:ensayo:v:35:y:2017:i:82:p:71-85 is not listed on IDEAS

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    More about this item

    Keywords

    Potential output; financial cycle; asset prices; Kalman filter;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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