Template-Type: ReDIF-Paper 1.0
Author-Name: Byron Botha
Author-Name: Franz Ruch
Author-Name: Rudi Steinbach
Title: Shortlived supply shocks to potential growth
Abstract: Potential growth, or the non-inflationary rate of growth in output, is generally viewed as a slow-moving and smooth process. This implies that all the sudden changes in real gross domestic product (GDP), regardless of origin, are reflected in the output gap. There are, however, short-lived supply shocks. Recent examples include the platinum-sector strike of 2014 and the drought of 2015/16 that are more accurately identified as temporary shifts in potential growth. We update the South African Reserve Bank's current, finance-neutral, estimates of potential growth to account for these short-lived supply shocks. We compare the supply shocks, that should shift potential growth rather than the output gap generated from the model, to a structural vector autoregression (SVAR) model. The resulting output gap more accurately reflects a measure of demand pressures in the economy at any given point in time. The output gap is not as wide as previously estimated after 2015.
Creation-Date: 2018-06-22
File-URL: https://www.resbank.co.za/content/dam/sarb/publications/working-papers/2018/8605/WP1802a.pdf
File-Format: application/pdf
File-Function: Revision
Number: 8605
Handle: RePEc:rbz:wpaper:8605