Description

This article presents a historical analysis of the Chilean monthly growth rate from 1987 to 2000, applying the Switching Regime methodology design by Hamilton (1989). Three scenarios were considered, which imply a number of parameters estimated using the expected maximization iterative procedure (EM). There is a characterization of the conditional density function for each state of the economy, defined by boom, sustainable growth, and finally, an economy in recession. The estimation procedure shows that the economy moved into a recession density function scenario when the Asian Flu was evident in 1998. Currently, we are in the sustainable rate of growth scenario, without inflationary risks. The analysis reveals that the actual monetary policy is correlated with the indications of the monetary policies proposed by the switching model. The mean growth in the three scenarios is 10%, 6%, and -0.1%, implying a potential non-accelerating inflationary rate of growth of around 6%. Based on the conditional probabilities generated from the model, an artificial monetary index is built, that will work as an early warning indicator to help avoid misalignments and signal potentially required future monetary movements.