Potential Growth of the Spanish Economy

TLDR: In this article, the authors present an estimate of the Spanish economy's potential growth, which is based on a production function methodology that includes certain refinements on previous versions and generates less procyclical potential output growth estimates than those traditionally considered in the literature.

Abstract: This paper presents an estimate of the Spanish economy’s potential growth. This estimate is based on a production function methodology that includes certain refinements on previous versions and generates less procyclical potential output growth estimates than those traditionally considered in the literature. As a result, the (positive) output gap estimated in expansions is higher and that estimated in recessions is lower. According to these results, given the available population projections and under the assumption that total factor productivity (TFP) and structural unemployment will behave in line with historical patterns, the Spanish economy’s potential growth is expected to recover gradually over the coming years but, in line with projections by international organisations, to lower rates than those in the expansion period. However, per capita growth rates fully recover to the pre-crisis levels, which highlights the importance of population projections in shaping the Spanish potential growth.

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Table 1 gives estimates of potential growth and the contributions of its main compo-

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POTENTIAL GROWTH
OF THE SPANISH ECONOMY
Documentos Ocasionales
N.º 1603
Pilar Cuadrado and Enrique Moral-Benito
2016

POTENTIAL GROWTH OF THE SPANISH ECONOMY

Documentos Ocasionales. N.º 1603
2016
Pilar Cuadrado and Enrique Moral-Benito
BANCO DE ESPAÑA
POTENTIAL GROWTH OF THE SPANISH ECONOMY

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performance of its functions, that may be of general interest.
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© BANCO DE ESPAÑA, Madrid, 2016ISSN: 1696-2230 (on line)

Abstract
This paper presents an estimate of the Spanish economy’s potential growth. This estimate is
based on a production function methodology that includes certain refi nements on previous
versions and generates less procyclical potential output growth estimates than those
traditionally considered in the literature. As a result, the (positive) output gap estimated in
expansions is higher and that estimated in recessions is lower. According to these results, given
the available population projections and under the assumption that total factor productivity
(TFP) and structural unemployment will behave in line with historical patterns, the Spanish
economy’s potential growth is expected to recover gradually over the coming years but, in
line with projections by international organisations, to lower rates than those in the expansion
period. However, per capita growth rates fully recover to the pre-crisis levels, which highlights
the importance of population projections in shaping the Spanish potential growth.
Keywords: potential growth, output gap, Spain.
JEL classifi cation: E23, E32, E13, O47, O52.

Frequently asked questions

Q1. What are the contributions mentioned in the paper "Potential growth of the spanish economy documentos ocasionales" ?

This paper presents an estimate of the Spanish economy ’ s potential growth. According to these results, given the available population projections and under the assumption that total factor productivity ( TFP ) and structural unemployment will behave in line with historical patterns, the Spanish economy ’ s potential growth is expected to recover gradually over the coming years but, in line with projections by international organisations, to lower rates than those in the expansion period. However, per capita growth rates fully recover to the pre-crisis levels, which highlights the importance of population projections in shaping the Spanish potential growth. This estimate is based on a production function methodology that includes certain refi nements on previous versions and generates less procyclical potential output growth estimates than those traditionally considered in the literature. 

Q2. What have the authors stated for future works in "Potential growth of the spanish economy documentos ocasionales" ?

In any event, it should be underscored that these estimates are based on a simple growth accounting exercise and, therefore, they depend crucially on the assumptions made, in particular about the future course of the population, the structural unemployment rate and TFP. Along these same lines, nor is the potential impact on the economy ’ s potential growth of the structural reforms pursued in recent years and those that may be launched in the future. For the long-term projection period and according to INE estimates, the stabilised declines in population – at around -1 % – are expected to extend to the end of the period. In any case, for illustrative purposes, the authors also discussed three alternative scenarios incorporating some of the effects of the structural reforms and resulting in higher potential growth rates than those of the baseline scenario.