Output Gaps and Policy Stabilisation in Latin America: The Effect of Commodity and Capital Flow Cycles

24 Pages Posted: 14 Jun 2016  

Enrique Alberola

BIS

Rocio Gondo

Independent

Marco J. Lombardi

Bank for International Settlements (BIS) - Monetary and Economic Department

Diego Urbina

Bank for International Settlements (BIS)

Date Written: June 2016

Abstract

We provide a measure of the output gap that filters out the impact of the commodity and net capital inflows booms for Latin American countries. These two factors temporarily boost output and so are likely to push up estimates of potential growth in the region to unrealistic levels, thereby resulting in an underestimation of the output gaps during the upswing of the commodity cycle. We also shed light on the interaction between the two components. The results show that commodity prices has been the dominant factor explaining deviation of activity from sustainable levels. The timely consideration of these factors could prevent a procyclical fiscal policy bias in the region.

Keywords: output gap, commodity prices, capital flows, procyclicality, fiscal policy, Latin America

JEL Classification: E44, E52, E62, H30, H62

Suggested Citation

Alberola, Enrique and Gondo, Rocio and Lombardi, Marco J. and Urbina, Diego, Output Gaps and Policy Stabilisation in Latin America: The Effect of Commodity and Capital Flow Cycles (June 2016). BIS Working Paper No. 568. Available at SSRN: https://ssrn.com/abstract=2795285

Enrique Alberola (Contact Author)

BIS ( email )

Ruben Dario 281
Polanco, Miguel Hidalgo
Mexico City, 11580
Mexico

HOME PAGE: http://www.bis.org/author/enrique_alberola-ila.htm

Rocio Gondo

Independent

No Address Available

Marco Jacopo Lombardi

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland
+41612809492 (Phone)

Diego Urbina

Bank for International Settlements (BIS)

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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