Potential Output in LAtin America: a standard approach for the 1950-2002 period

In the context of these new approaches in the analysis of economic growth concepts like â€catching-up†and potential growth are becoming increasingly important. In estimating potential output two approaches can be distinguished. In the first one a variety of statistical detrending techniques are applied, in our case using the Hodrick-Prescott filter, and in the second approach the output gap is estimated on the basis of structural relationships. The Hodrick-Prescott filter defines a â€trend†output. The second part on production functions indicate more towards a concept of production frontier or the maximum possible production given certain factors. The paper estimates potential output in a group of nine countries in Latin America: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru and Venezuela. These countries cover around 80% of the Latin American territory and about 90% of its GDP. A new aspect of our estimates is that they introduce the concept of structural change in the production function