The 2008 Financial Crisis And Potential Output In Asia: Impact And Policy Implications

Monitoring the behavior of potential output helps policymakers implement appropriate policies in response to an economic crisis. In the short-run, estimates of the output gap can guide the timing of the implementation and withdrawal of stimulus measures. In the medium-to long-term, these estimates can also provide the basis for gauging productive potential and, hence, guide policies to support sustainable, non-inflationary output growth. In this paper, the authors investigate the post-crisis behavior of potential output in emerging East Asian economies by employing the Markov-switching model to account for structural breaks.