Estimation of Potential GDP: Peru, 1950–1997

This article examines estimates of potential Gross Domestic Product (GDP) in Peru between 1950 and 1997, using six different methods to address how to measure this crucial indicator for economic policymaking. The research focuses on how potential GDP reflects the maximum level of output that can be achieved through the full utilization of productive factors, in the context of a country with a history of economic crises. The study presents methods that treat potential GDP as the maximum level of output—such as the trend-through-peaks method, the output-to-capital ratio method, and the Berg method—as well as methods that treat it as a permanent component, such as the production function, the Hodrick-Prescott filter, and the structural VAR. The results show that the former methods tend to overestimate the divergences between observed and potential GDP, while the production function method offers estimates more consistent with economic reality. These findings have important implications for the calibration of economic policies and the sustainability of growth in the medium term. (Abstract and audio: Department of Economic Publications)