Some Estimates of Potential Output and the Output Gap for South Africa

This paper estimates potential output and the output gap using three methods: the statistical time trend, a Cobb-Douglas production function and the Hodrick-Prescott Filter methods. Estimates of potential output growth rate of the economy are discussed as well as contributions to growth during the period under study, using the production function method. The implied output gap estimates could prove useful in formulating macroeconomic policy in South Africa, as it may indicate underlying inflationary pressure in the economy.