Comments on вЂњEstimating Potential Output for ArgentinaвЂќ Escude, Gabrielli, Lanteri and Roulliet Armando Pinell Central Bank of Bolivia September, 2004 General Comments пЃ¬ Nearly exclusive accounting methodology to calculate potential output, except for conventional seasonal adjustment and some implicit filter to вЂњsmoothвЂќ series (to be discussed later) пЃ¬ The main benefit of this approach is transparency (absence of a вЂњblack boxвЂќ) and simplicity to perform historical decomposition and forecast пЃ¬ Nevertheless, an econometric methodology could be desirable in order to verify that factor shares and factor elasticities do not differ пЃ¬ Econometrics also allows us to analyze the convenience of the functional form chosen (Cobb-Douglas) A Simple Econometric Exercise пЃ¬ A simple regression is informative about the first issue (factor shares vs. elasticities): GDP пЂ© пЂЅ 1.58 пЂ« 0.75 п‚ґ log log пЂЁ Labor (Std Err) R пЃ¬ 2 пЂЅ 0.85 пЂЁ Capital Labor пЂ© пЂ« 0.002 п‚ґ Trend пЂЁ0.75пЂ© пЂЁ0.07 пЂ© DW пЂЅ 034 пЂѕ 0.56 пЂЁ0.0003пЂ© Engle пЂ Granger Test пЂЅ пЂ2.93 (31%) (Capital Share) This result could be confirmed with more advanced and usual cointegration analysis a la Johansen (1988) and Pesaran and Shin (1999) пЃ¬ Then, the scope of the paper could be extended in this way to obtain stronger and robust results Statistical Filters and Smooth Series пЃ¬ Use of statistical filters (Hodrick and Prescott or Baxter and King) is avoided in the paper, in order to preclude some results (like a potential GDP growth fall, as will be discussed later) пЃ¬ Then, some issues arise: вЂ“ What is the relation between 19 quarters geometric average of TFP and those others obtained with usual filters? вЂ“ NAIRU methodology is not explained explicitly in the paper, and its relation with monetary policy is crucial вЂ“ This methodological question goes beyond TFP and covers the other two series: Capital and TFP Comparison with Statistical Filters пЃ¬ Comparisons with other methodologies raise some important questions: вЂ“ What is the potential GDP growth at вЂњreal timeвЂќ now? вЂ“ How was it affected by the deep crisis of 2001? 300000 280000 260000 240000 220000 Baxter and King Filter Hodrick - Prescott Filter Escude, Gabrielli, Lanteri and Roullet 200000 180000 80 82 84 86 88 90 92 94 96 98 00 02 Some Extensions пЃ¬ A prospective analysis could be important, addressing some of these questions: вЂ“ How Argentina could improve its economic policies (especially monetary and exchange policy) to obtain greater GDP growth in the near future? вЂ“ What investment rate (as % of GDP) is needed to resume growth and reduce the employment (and social) gap? вЂ“ Is Argentina competitive in a context of faster technological change? пЃ¬ A future extension with annual series could be the use of вЂњstochastic frontier analysisвЂќ to decompose TFP in efficiency and productivity, because the methodology used in the paper assumes the usual efficiency concept implicit in production functions. The Main Question пЃ¬ How would Argentina set a sustainable growth path, avoiding the fluctuations in the last 30 years of its economic history?