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Potential Output and Output Gap in Nepal

Author

Listed:
  • Pitambar Bhandari

    (Nepal Rastra Bank)

Abstract

The potential output and output gap are key variables in identifying the scope for sustainable non-inflationary growth and assessment of the stance of macroeconomic policies. This paper estimates potential output and the output gap in Nepal by different methodologies. The different methodologies produce similar results followed by analysis and observations. The results show that the output gaps were within relatively narrower band since 1990s. The results also reveal some sign of overheating in recent years. The results from production function approach indicate that total factor productivity is declining continuously in the last decade limiting the scope for demand management policies to attain high and sustainable economic growth.

Suggested Citation

  • Pitambar Bhandari, 2010. "Potential Output and Output Gap in Nepal," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 22(1), pages 1-14, April.
    • Handle: RePEc:nrb:journl:v:22:y:2010:p:3
    as

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    References listed on IDEAS

    as
    1. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-368, July.
    2. Ms. Sweta Chaman Saxena & Ms. Valerie Cerra, 2000. "Alternative Methods of Estimating Potential Output and the Output Gap: An Application to Sweden," IMF Working Papers 2000/059, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Potential Output; Output Gap; Univariate Filter; Production Function;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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