Estimating Potential Output and the Output Gap - An Application to Brazil

This work attempts to estimate potential output and the output gap for Brazil using the following methods: Hodrick-Prescott filter, Band-Pass Filter, Moving Average, Deterministic Trend, Beveridge-Nelson decomposition, Univariate Unobserved Components Model, Production Function Method, and Structural VAR approach by Blanchard and Quah. Measures of potential output and output gap are essential in assessing a non-inflationary and sustainable growth, guiding macroeconomic policies with supported forecasts. The estimates of potential output help in determining sustainable growth and output gaps indicate inflationary or disinflationary pressures. Comparing all results it is concluded that policymakers should not rely on one single measure of output gap, since there are substantial uncertainties associated with the estimation of potential output and output gap for the Brazilian economy.