Estimating Sustainable Output Growth in Emerging Market Economies

Abstract

We present a model that incorporates the information contained in diverse variables when estimating sustainable output growth. For this purpose, we specify a state-space model representing a multivariate HP filter that links cyclical fluctuation in GDP with several indicators of macroeconomic imbalances. We obtain the parameterizetion of the model by estimating it over a cross-section of emerging market economies. We show that the trend output growth rates estimated by using this model are more stable than those obtained with a univariate version of the filter and thus are more consistent with the notion of sustainable output.