Potential growth in Central America and the Dominican Republic: Was there a pre-pandemic new normal?

Main Article Content

Leonardo Maldonado https://orcid.org/0000-0002-9400-3346

Keywords

Bayesian model avaraging, output gap, potential growth, production function, regime switching

Abstract

This paper explores the potential growth of Central America and the Dominican Republic after the 2008-2009 crisis to shed light on their 2020 pre-pandemic macroeconomic vulnerability and to ascertain that the observed path is deviating more than before from its potential. Using Hodrick-Prescott filter by constrained minimization, production function, regime-switching models, and Bayesian model averaging, the main findings suggest a pre-pandemic regional slowdown. By country, there are mixed results. This scenario was not only driven by international factors but by particularities; on the one hand, statistical models show higher potential growth, and, in a less favorable context, the region would be closer to the structural performance; on the other hand, individual factors are hindering potential growth.

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