Potential Output and Output Gap in Central America, Panama and Dominican Republic

June 12, 2013

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Potential Output is a key factor for debt sustaintability analysis and for developing strategies for growth, but unfortunately it is an unobservable variable. Using three methodologies (production function, switching, and state-space), this paper computes potential output for CAPDR countries using annual data. Main findings are: i) CAPDR potential growth is about 4.4 percent while output gap volatility is about 1.9 percent; ii) The highest-potential growth country is Panama (6.5 percent) while the lowest-growth country is El Salvador (2.6 percent); iii) CAPDR business cycle is about eigth years.

Subject: Economic growth, Output gap, Potential output, Production, Production growth, Sustainable growth, Total factor productivity

Keywords: CAPDR country, Central America, growth decomposition, output gap, output gap variability, output gap volatility, output gap-production function approach, Potential growth, Potential output, potential output gap, Production growth, standard deviation, state-space model, Sustainable growth, switching, Total factor productivity, WP

Pages:
42
Volume:
2013
DOI:
https://doi.org/10.5089/9781484322208.001
Issue:
145
Series:
Working Paper No. 2013/145
Stock No:
WPIEA2013145
ISBN:
9781484322208
ISSN:
1018-5941

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