The Cyclical Sensitivity in Estimates of Potential Output

The fact that declines in output since the Great Recession have been parlayed into equivalent declines in measures of potential output is commonly interpreted as implying that output will not return to previous trends. We show that real-time estimates of potential output for the United States and ot...

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Bibliographic Details
Published inBrookings papers on economic activity Vol. 2018; no. 2; pp. 343 - 411
Main Authors COIBION, OLIVIER, GORODNICHENKO, YURIY, ULATE, MAURICIO
Format Journal Article
LanguageEnglish
Published Washington Brookings Institution Press 01.10.2018
Johns Hopkins University Press
Subjects
Business cycles
Economic activity
Economic conditions
Economic models
Economic statistics
Estimates
GDP
Government spending
Great Recession
Gross Domestic Product
International organizations
Labor force
Monetary policy
Phillips curve
Productivity
Recessions
Time series
Trends
United States > US
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Summary:The fact that declines in output since the Great Recession have been parlayed into equivalent declines in measures of potential output is commonly interpreted as implying that output will not return to previous trends. We show that real-time estimates of potential output for the United States and other countries respond gradually and similarly to both transitory and permanent shocks to output. Observing revisions in measures of potential output therefore tells us little about whether changes in actual output will be permanent. Some alternative methodologies to estimate potential output can avoid these short-comings. These approaches suggest a much more limited decline in potential output since the Great Recession.
ISSN:0007-2303
1533-4465
1533-4465
0007-2303
DOI:10.1353/eca.2018.0020