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NEW ESTIMATES OF THE U.S. ECONOMY'S POTENTIAL GROWTH RATE
Author(s) -
KAHN GEORGE A.
Publication year - 1996
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.1996.tb00629.x
Subject(s) - economics , slowdown , productivity , potential output , growth rate , econometrics , real gross domestic product , macroeconomics , mathematics , monetary policy , geometry , economic growth
Using an Okun's law framework, the analysis here estimates potential growth for the 1990s as measured by both fixed‐ and chain‐weighted GDP. It then decomposes estimated potential growth rates into labor productivity growth (LPG) and labor input growth (LIG) using a regression analysis to separate secular from cyclical changes. It compares estimates of potential output and trend productivity growth for the 1990s with estimates from earlier periods. Results indicate that eliminating the substitution bias associated with fixed‐weight measures of real GDP raises estimated potential GDP growth in the 1980s but lowers it in the 1990s. A slowdown in labor force growth, with little or no change in long‐term productivity growth, largely accounts for the implied slowdown in potential growth.