Estimating potential output in developing countries |
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Authors: | Andrew Burns Theo Janse Van Rensburg Kamil DybczakTrung Bui |
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Institution: | The World Bank Group, 1818 H St. NW, Washington, DC 20433, United States |
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Abstract: | This paper describes a parsimonious methodology employed by the World Bank for estimating potential output using the production function method. Despite the necessity of strong assumptions, sensitivity analysis suggests the reported estimates for 159 countries are robust to alternative specifications. Moreover, for the majority of countries estimated output gaps are positively correlated with inflation acceleration and negatively correlated with current account balances. An examination of estimated output gaps and post-crisis economic developments in several middle-income countries suggest that the methods can play a useful role in guiding macroeconomic policy. |
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Keywords: | Potential GDP Macro econometric model Forecasting Policy analysis |
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