Minding the Output Gap: A Hamilton Filter Approach and Updated Estimates for the Brazilian Economy

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Sousa, José Eduardo Gonçalves de;
Gutiérrez Briceño, Jose Alejandro
Jun 2023
This paper develops an alternative approach for estimating the potential output and the output gap, intending to serve as a good balance between a simple low data requiring method and a powerful but complex structural approach. We rely on the Hamiltons Regression Filter properties to generate a statistically robust estimator of the potential Gross Domestic Product level which overcomes the problems associated to the Hodrick-Prescott filter and improves the Production Function Approach (PFA). Furthermore, we use this methodology to update the estimates of the potential output and output gap for the Brazilian economy.