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Leandro Medina and Mr. Nicolas E Magud
This paper estimates the potential output (and the output gap) in Chile using several different methodologies. After a structural brake in 1998, the average growth rate of potential output in Chile declined from over 7 percent to 3-4 percent in the aggregate economy, but to less than 2 percent in the natural resource sector. The contributions to aggregate potential output growth of the natural resource sector and the non-natural resource sector are estimated, finding that the contribution to growth of the natural resource sector is non-linear-increasing during the 1990s, declining during the 2000s, and turning negative in the mid-2000s-despite the monotonic decrease in the share of natural resource output in aggregate output.
Leandro Medina and Mr. Nicolas E Magud

Front Matter Page Western Hemisphere Department Authorized for distribution by Dora Iakova Contents I. Introduction II. Models III. Data IV. Results A. Growth rates B. Output Gaps V. Concluding Remarks Tables 1. Average GDP Growth Rates Figures 1. Contributions to Growth 2. Total Factor Productivity Index 3. Real GDP and Trends 4. Output Gaps 5. Contributions to Potential Output Growth--Production Function 6. Real GDP Shares References

Mr. Claudio A Paiva

Front Matter Page Western Hemisphere Department Authorized for distribution by Robert Rennhack Contents I. Introduction II. Sustainability and Competitiveness Indicators III. Estimating Costa Rica’s Equilibrium Rate: the CGER Methodology IV. Estimating Costa Rica’s Equilibrium Rate: the FEER Methodology V. Concluding Remarks Figures 1. External Current Account 2a. The Cyclically-Adjusted External Current Account Balance 2b. Output Gap and Real GDP Growth 3. Export Composition 4a. External Public Debt 4b. Foreign Direct

Michal Andrle

of Hodrick-Prescott/Leser Filter and Local Linear Trend Models B. Output Gap Estimation using a Multivariate Semi-Structural Filter 1. Decomposition into Observables 2. News Effects Decomposition C. Natural Output Gap in a DSGE Model IV. Conclusions References Appendices A. Parameter Estiates from Beneš et al. (2010) B. Not for publication: Difference between two representations of the HP filter C. Example: Simple Multivariate Filter – Three Representations D. Not for publication: Variance Reduction via Common Component and Multiple

Francesco Furlanetto, Paolo Gelain, and Marzie Taheri Sanjani

Front Matter Page European Department Contents I. Introduction II. Model A. Final Goods Producers B. Intermediate Good Producers C. Employment Agencies D. Households E. Entrepreneurs F. Central Bank G. Government III. Empirical Evaluation A. Bayesian Estimation B. Variance Decomposition IV. Frictions and Output Gap A. Potential Output and Output B. Output Gap B.1. Monetary Policy Trade-offs C. Optimal Monetary Policy V. Conclusion A Appendix - Financial Condition B Appendix - Estimation

International Monetary Fund. Middle East and Central Asia Dept.

the target. Accordingly, the real interest rate is adjusted for the equilibrium real rate, assumed to be equal to 4 percent. 5 OLS estimates are presented in Table 1 . 6 Most of the estimates are statistically significant at the conventional levels, with the important exception of the coefficient on the output gap in the inflation equation; the fit is overall good. Table 1. Kazakhstan: Model Parameter Estimates A. Inflation Equation B. Output Gap Equation Dependent Variable: GAP Method: Least Squares Date: 06/05/18 Time

Mr. Niels-Jakob H Hansen, Alessandro Lin, and Rui Mano
Inequality is increasingly a concern. Fiscal and structural policies are well-understood mitigators. However, less is known about the potential role of monetary policy. This paper investigates how inequality matters for monetary policy within a tractable Two-Agent New Keynesian model that captures important dimensions of inequality. We find some support for making inequality an explicit target for monetary policy, particularly if central banks follow standard Taylor rules.
Leandro Medina and Mr. Nicolas E Magud

.4 7.2 3.5 5.6 7.2 3.8 4.3 6.8 1.5 Production Function Approach-2 1/ 5.2 6.3 3.9 5.2 6.3 3.9 5.2 6.3 3.9 Production Function Approach-2 1/ 2/ 6.0 7.3 4.5 6.0 7.3 4.5 6.0 7.3 4.5 Blanchard and Quah 5.4 7.5 3.6 5.4 7.3 3.9 4.1 7.1 1.6 GPM 3/ 3.7 3.7 3.7 average 5.4 7.0 3.7 5.6 7.1 3.9 4.6 6.9 2.6 Source: Authors’ calculations. 1/ Annual. 2/ Corrected for education. 3/ 2001-2009. B. Output

Mr. Sandeep Mazumder and Laurence M. Ball
This paper examines inflation dynamics in the United States since 1960, with a particular focus on the Great Recession. A puzzle emerges when Phillips curves estimated over 1960-2007 are ussed to predice inflation over 2008-2010: inflation should have fallen by more than it did. We resolve this puzzle with two modifications of the Phillips curve, both suggested by theories of costly price adjustment: we measure core inflation with the median CPI inflation rate, and we allow the slope of the Phillips curve to change with the level and vairance of inflation. We then examine the hypothesis of anchored inflation expectations. We find that expectations have been fully "shock-anchored" since the 1980s, while "level anchoring" has been gradual and partial, but significant. It is not clear whether expectations are sufficiently anchored to prevent deflation over the next few years. Finally, we show that the Great Recession provides fresh evidence against the New Keynesian Phillips curve with rational expectations.
Michal Andrle
This paper discusses several popular methods to estimate the ‘output gap’. It provides a unified, natural concept for the analysis, and demonstrates how to decompose the output gap into contributions of observed data on output, inflation, unemployment, and other variables. A simple bar-chart of contributing factors, in the case of multi-variable methods, sharpens the intuition behind the estimates and ultimately shows ‘what is in your output gap.’ The paper demonstrates how to interpret effects of data revisions and new data releases for output gap estimates (news effects) and how to obtain more insight into real-time properties of estimators.