Estimates of Russia's Potential Output

ABSTRACT

Considering the specifics of the Russian economy such as dependency on oil, gas drilling and production, including the current context of the Western sanctions, COVID-19 pandemic as well as distinct potential output development, the main aim of this paper is to quantify the recent output gap for Russia. We use three mainstream methodologies the Hodrick-Prescott filter as a benchmark, the Kalman filter to follow and the Cobb-Douglas production function. The sample time span ranges from 1995Q1 until 2020Q3, while all calculations are performed on quarterly frequencies. The analysis suggests that given the low fixed investment ratios, limited R&D spending in non-military sectors and adverse demographic development, under a "no policy change" scenario, there might soon be even more downward pressures on the country's potential output growth. The economy may continue increasing only at a snail's pace even after a possible withdrawal of the Western sanctions and the end of the COVID-19 pandemic.