Output gaps and policy stabilisation in Latin America: the effect of commodity and capital flow cycles

Produced by: 
Bank of International Settlements
Available from: 
June 2016
Paper author(s): 
Enrique Alberola
Rocio Gondo
Marco Lombardi
Diego Urbina
Macroeconomics - Economic growth - Monetary Policy

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.


Research section: 
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