Estimating and Projecting Potential Output Using Structural VAR Methodology: The Case of the Mexican Economy

Working Paper 95-2

Posted: 25 Aug 1998

See all articles by Alain de Serres

Alain de Serres

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Alain Guay

University of Quebec at Montreal (UQAM) - Centre de recherche sur l'emploi et les fluctuations économiques (CREFÉ)

Pierre St-Amant

Bank of Canada

Abstract

In this paper the authors show how potential output can be estimated and projected through an approach derived from the structural vector autoregression methodology. This approach is applied to the Mexican economy. To identify demand, supply and world oil shocks, the authors assume that demand shocks do not have a permanent effect on output and that the international price of oil is exogenous to the Mexican economy in the long term. They then calculate potential output by adding the world oil and supply components to the drift in output. They find that world oil shocks have been an important source of both actual and potential output fluctuations over a sample period extending from 1965 to 1994. However, they also find occurrences of important gaps between actual and potential output.

JEL Classification: E32

Suggested Citation

de Serres, Alain and Guay, Alain and St-Amant, Pierre, Estimating and Projecting Potential Output Using Structural VAR Methodology: The Case of the Mexican Economy. Working Paper 95-2, Available at SSRN: https://ssrn.com/abstract=6538

Alain De Serres

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

Alain Guay

University of Quebec at Montreal (UQAM) - Centre de recherche sur l'emploi et les fluctuations économiques (CREFÉ) ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada
(514) 987-3000 (Phone)
(514) 987-8494 (Fax)

Pierre St-Amant (Contact Author)

Bank of Canada ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada
613-782-7386 (Phone)
613-782-7658 (Fax)

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