Showing papers on "Potential output published in 2014"
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TL;DR: The authors measured the long-term effects of the global recession of 2008-2009 on output in 23 countries by comparing current estimates of potential output from the OECD and IMF to the path that potential was following in 2007, according to estimates at the time.
Abstract: This paper estimates the long-term effects of the global recession of 2008-2009 on output in 23 countries I measure these effects by comparing current estimates of potential output from the OECD and IMF to the path that potential was following in 2007, according to estimates at the time The losses in potential output range from almost nothing in Australia and Switzerland to more than 30% in Greece, Hungary, and Ireland; the average loss, weighted by economy size, is 84% Most countries have experienced strong hysteresis effects: shortfalls of actual output from pre-recession trends have reduced potential output almost one-for-one In the hardest-hit economies, the current growth rate of potential is depressed, implying that the level of lost potential is growing over time
255 citations
TL;DR: The authors measured the long-term effects of the global recession of 2008-2009 on output in 23 countries by comparing current estimates of potential output from the OECD and IMF to the path that potential was following in 2007, according to estimates at the time.
Abstract: This paper estimates the long-termeffects of the global recession of 2008–2009 on output in 23 countries. I measure these effects by comparing current estimates of potential output from the OECD and IMF to the path that potential was following in 2007, according to estimates at the time. The losses in potential output range from almost nothing in Australia and Switzerland to more than 30 percent in Greece, Hungary, and Ireland; the average loss, weighted by economy size, is 8.4 percent. Most countries have experienced strong hysteresis effects: shortfalls of actual output from pre-recession trends have reduced potential output almost one-for-one. In the hardest-hit economies, the current growth rate of potential is depressed, implying that the extent of lost potential is growing over time.
122 citations
Posted Content•
TL;DR: This paper measured the long-term effects of the global recession of 2008-2009 on output in 23 countries by comparing current estimates of potential output from the OECD and IMF to the path that potential was following in 2007, according to estimates at the time.
Abstract: This paper estimates the long-term effects of the global recession of 2008-2009 on output in 23 countries. I measure these effects by comparing current estimates of potential output from the OECD and IMF to the path that potential was following in 2007, according to estimates at the time. The losses in potential output range from almost nothing in Australia and Switzerland to more than 30% in Greece, Hungary, and Ireland; the average loss, weighted by economy size, is 8.4%. Most countries have experienced strong hysteresis effects: shortfalls of actual output from pre-recession trends have reduced potential output almost one-for-one. In the hardest-hit economies, the current growth rate of potential is depressed, implying that the level of lost potential is growing over time.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
94 citations
TL;DR: In this paper, the authors set out an analytical framework and empirical estimates of the potential costs of short-termism arising from distortions to the cost of capital and investment intentions in the financial intermediation chain.
93 citations
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TL;DR: In this article, a parsimonious and transparent approach to embedding economic information that is less vulnerable to misspecification is proposed, using the Phillips curve, arguably the most popular structural relationship in this context.
Abstract: A popular strategy for estimating output gaps is to anchor them to structural economic relationships. The resulting output gaps, however, are often highly sensitive to numerous auxiliary assumptions inherent in the approach. This complicates their use in policymaking. We illustrate the point using the Phillips curve, arguably the most popular structural relationship in this context. Depending on the specification, we show that conditioning on this relationship either introduces a trend in the output gap - which is conceptually unappealing - or has little effect on it - which defeats the purpose of the exercise. Moreover, the estimated gaps perform poorly in real time, with large ex-post revisions. The opaqueness of the approach, which increases greatly with the dimension of the estimated system, can mask these problems. In order to address these limitations, we propose a more parsimonious and transparent approach to embedding economic information that is less vulnerable to misspecification. As an illustration, we apply the corresponding parsimonious multivariate filter to US data. We find that proxies for the financial cycle, notably credit growth, but also unemployment contain significant information and help generate robust real-time output gap estimates.
87 citations
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TL;DR: In this article, a calibrated growth model suggests trend productivity growth has returned close to its 1973-1995 pace, which is consistent with a return to normal productivity growth after nearly a decade of exceptional IT-fueled gains.
Abstract: U.S. labor and total-factor productivity growth slowed prior to the Great Recession. The timing rules explanations that focus on disruptions during or since the recession, and industry and state data rule out ?bubble economy? stories related to housing or finance. The slowdown is located in industries that produce information technology (IT) or that use IT intensively, consistent with a return to normal productivity growth after nearly a decade of exceptional IT-fueled gains. A calibrated growth model suggests trend productivity growth has returned close to its 1973-1995 pace. Slower underlying productivity growth implies less economic slack than recently estimated by the Congressional Budget Office. As of 2013, about of the shortfall of actual output from (overly optimistic) pre-recession trends reflects a reduction in the level of potential.
85 citations
TL;DR: The relative scarcity of nurses is linked to output congestion and pure technical, scale and output congestion inefficiency measures are derived and it is shown that “reducing mortality” involves sacrificing some good outputs.
Abstract: We analyze the operational performance of 202 Turkish rural general hospitals. To help improve performance on both input and output space, we adopt a directional distance approach. We treat a mortality based measure as a “needs indicator”. We derive pure technical, scale and output congestion inefficiency measures and show how they vary across size classes. We show that “reducing mortality” involves sacrificing some good outputs. This is a trade off that holds at the potential output level. Second stage regressions of the inefficiency scores against hospital and rural district level variables, pinpoint critical areas for performance improvement. In particular we show the relative scarcity of nurses is linked to output congestion.
58 citations
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TL;DR: In this article, the authors show that the slowdown in productivity growth is located in industries that produce information technology (IT) or use IT intensively, consistent with a return to normal productivity growth after nearly a decade of exceptional ITfueled gains.
Abstract: U.S. labor and total-factor productivity growth slowed prior to the Great Recession. The timing rules out explanations that focus on disruptions during or since the recession, and industry and state data rule out “bubble economy” stories related to housing or finance. The slowdown is located in industries that produce information technology (IT) or that use IT intensively, consistent with a return to normal productivity growth after nearly a decade of exceptional IT-fueled gains. A calibrated growth model suggests trend productivity growth has returned close to its 1973-1995 pace. Slower underlying productivity growth implies less economic slack than recently estimated by the Congressional Budget Office. As of 2013, about 3⁄4 of the shortfall of actual output from (overly optimistic) pre-recession trends reflects a reduction in the level of potential.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
57 citations
TL;DR: A novel dynamic activity analysis model is proposed to forecast the possibilities of win-win development in Chinese industry between 2011 and 2050 and reveals that the appropriate energy-saving and emission-abating regulation will significantly result in both the net growth of potential output and the increasing growth of total factor productivity.
Abstract: Porter hypothesis states that environmental regulation may lead to win-win opportunities, that is, improve the productivity and reduce the undesirable output simultaneously. Based on directional distance function, this paper proposes a novel dynamic activity analysis model to forecast the possibilities of win-win development in Chinese industry between 2011 and 2050. The consistent bootstrap estimation procedures are also developed for statistical inference of the point forecasts. The evidence reveals that the appropriate energy-saving and emission-abating regulation will significantly result in both the net growth of potential output and the increasing growth of total factor productivity for most industrial sectors in a statistical sense. This favors Porter hypothesis.
32 citations
TL;DR: This paper studied the impact of recessions on the longer run level of output using data on 23 advanced economies over the past 40 years and found that severe recessions have a sustained and sizable negative impact on the level of the output.
Abstract: This paper studies the impact of recessions on the longer-run level of output using data on 23 advanced economies over the past 40 years. We find that severe recessions have a sustained and sizable negative impact on the level of output. This sustained decline in output raises questions about the underlying properties of output and how we model trend output or potential around recessions. We find little support for the view that output rises faster than trend immediately following recessions to close the output gap. Indeed, we find little evidence that growth is faster following recessions than before; if anything post-trough growth is slower. Instead, we find that output gaps close importantly through downward revisions to potential output rather than through rapid post-recession growth. The revisions are made slowly (over years) – a process that leads to an initial underestimation of the effect of recessions on potential output and a corresponding under-prediction of inflation.
31 citations
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TL;DR: The authors provides a critical analysis of the ongoing rebalancing of euro area "deficit economies" (Greece, Ireland, Portugal, and Spain) that accumulated large current account deficits and external liability positions in the run-up to the crisis.
Abstract: Imbalances within the euro area have been a defining feature of the crisis. This paper provides a critical analysis of the ongoing rebalancing of euro area “deficit economies” (Greece, Ireland, Portugal, and Spain) that accumulated large current account deficits and external liability positions in the run-up to the crisis. It shows that relative price adjustments have been proceeding gradually. Real effective exchange rates have depreciated by 10-25 percent, driven largely by reductions in unit labor costs due to labor shedding. While exports have typically rebounded, subdued demand accounts for much of the reduction in current account deficits. Hence, the current account balance of the euro area as a whole has shifted into surplus. Internal rebalancing has come with subdued activity—notably very high unemployment in the deficit economies—and made continued adjustment more difficult. To advance rebalancing further, the paper emphasizes the need for: (1) macroeconomic policies that support demand and bring inflation in line with the ECB’s medium-term price stability objective; (2) continued EMU reforms (banking union) to ensure proper financial intermediation; and (3) structural reforms in product and labor markets to improve productivity and support the reallocation of resources to tradable sectors.
TL;DR: In this article, the authors investigated whether OECD countries are facing secular stagnation, defined as a situation when policy interest rates bounded at zero fail to stimulate demand sufficiently, due to low or negative neutral real interest rates and low inflation, and when ensuing prolonged and subdued growth undermines potential growth via labour hysteresis and discouraged investment.
Abstract: This paper investigates whether OECD countries are facing secular stagnation. Secular stagnation is defined as a situation when policy interest rates bounded at zero fail to stimulate demand sufficiently, due to low or negative neutral real interest rates and low inflation, and when ensuing prolonged and subdued growth undermines potential growth via labour hysteresis and discouraged investment. Obtaining firm evidence is complicated by considerable uncertainties surrounding estimates of economic slack and its impact on inflation, crisis-related hit to potential output and neutral interest rates. However, signs of secular stagnation are most evident in the euro area, particularly in the vulnerable members, in contrast to the United States and the United Kingdom, where evidence is less firm. Japan is arguably in the advanced stage of secular stagnation that started almost two decades ago. In countries with symptoms of secular stagnation, more monetary and fiscal stimulus should be accompanied by structural reforms to boost potential growth and neutral rates. Evidence on hysteresis effects strengthens the case for accommodative policies. In general, the large uncertainty about the size and persistence of hysteresis and risks associated with certain measures pose policy dilemmas and call for a comprehensive policy response.
TL;DR: In this article, the authors developed a new and surprisingly simple method of calculating the growth rate of potential GDP over the next decade and concluded that projections of potential output growth for the same decade in the most recent reports of the Congressional Budget Office (CBO) are much too optimistic.
Abstract: Forecasts for the two or three years after mid-2014 have converged on growth rates of real GDP in the range of 3.0 to 3.5 percent, a major stepwise increase from realized growth of 2.1 percent between mid-2009 and mid-2014. However, these forecasts are based on the demand for goods and services. Less attention has been paid to how the accelerated growth of real GDP will be supplied. Will the unemployment rate, which has declined at roughly one percent per year, decline even faster from 6.1 percent in June, 2014 to 3.0 percent or below in 2017? Will the supply-side support for the demand-side optimism be provided instead by a major rebound of productivity growth from the average of 1.2 percent over the past decade and 0.6 percent for the last four years, or perhaps by a reversal of the minus 0.8 percent growth rate since 2007 of the labor-force participation rate?The paper develops a new and surprisingly simple method of calculating the growth rate of potential GDP over the next decade and concludes that projections of potential output growth for the same decade in the most recent reports of the Congressional Budget Office (CBO) are much too optimistic. If the projections in this paper are close to the mark, the level of potential GDP in 2024 will be almost 10 percent below the CBO's current forecast. Further, the new potential GDP series implies that the debt/GDP ratio in 2024 will be closer to 87 percent than the CBO's current forecast of 78 percent. This paper also has profound implications for the Federal Reserve. The unemployment rate has declined rapidly, particularly within the last year. Faster real GDP growth will accelerate the decline in the unemployment rate and soon reduce it beyond any estimate of the constant-inflation NAIRU, even if productivity growth experiences a rebound and the labor force participation rate stabilizes. The macro economy is on a collision course between demand-side optimism and supply-side pessimism. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
TL;DR: The authors analyzes historical data on revisions of actual and potential growth in the European Union and the implication of these revisions for the measurement of fiscal effort using the cyclically adjusted primary balance (CAPB).
Abstract: Potential output estimation plays a crucial role in conducting fiscal policy based on structural balances. Difficulties in estimating potential output could lead to an erroneous policy stance with a consequent impact on growth. This paper analyzes historical data on revisions of actual and potential growth in the European Union and the implication of these revisions for the measurement of fiscal effort using the cyclically-adjusted primary balance (CAPB). It finds that revisions in output gap estimates were large, at almost 1½ percent of potential GDP on average. Revisions in potential GDP also contributed significantly to revisions in the estimated CAPB, especially during the crisis years. Given these findings and historical correlations, it proposes an indicative rule of thumb for reducing errors in the measurement of fiscal effort by factoring in that about 30 percent of revisions in actual growth capture changes in potential growth. In other words, the standard advice of “letting automatic stabilizers operate fully” in response to a positive/negative growth shocks likely implies a strengthening/weakening of the structural position.
TL;DR: In this article, the authors estimate the equilibrium rates of macroeconomic aggregates for small open economies by means of a multivariate trend-cycle decomposition, where the transitory components of the variables are linked to each other through an aggregate demand equation, a Phillips curve, and an equation specifying the interest-exchange rate nexus.
TL;DR: In this paper, an empirical estimation of Okun's law in context of Pakistan is presented, where three to one link between real GDP and rate of unemployment has been found and the empirical results show that there is no existence of this law in Pakistan economy.
Abstract: This research work is on the topic of an empirical estimation of Okun’s law in context of Pakistan. Coefficient of Okun’s law is estimated to check whether this law exist in Pakistan’s economy or not. Okun’s law shows three to one link between real GDP and rate of unemployment. Time series data of real GDP and rate of unemployment of Pakistan have been used to find the validity of Okun’s law. Duration of data is 1972 - 2012. Different three versions of Okun’s law gap version, difference version and dynamic version are used to calculate the Okun’s coefficient. Ordinary least square method is applied for analysis. The empirical results show that there is no existence of Okun’s law in Pakistan’s economy. Coefficients estimated by using all the three versions are very small and reject the presence of this law in Pakistan.
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01 Jan 2014
TL;DR: In this paper, the potential output from a euro area perspective was reviewed by summarising the developments according to international institutions and assessing the impact of the crisis on the potential growth of the euro area.
Abstract: This paper reviews potential output from a euro area perspective by summarising the developments according to international institutions and assessing the impact of the crisis. The paper also considers the methodological basis for potential output estimates, and the high degree of uncertainty that surrounds them. Although it is too early to see the full effects of structural reforms implemented since 2007/08, further structural reforms are needed to support euro area potential growth, especially in view of the negative impact that population ageing is expected to have on potential growth in the future. JEL Classification: E23, E25, E32, E37, O49
TL;DR: The authors assess the implications of incorrectly estimating a time-varying neutral rate using a small structural model with a simple monetary policy instrument rule and find that policy prescriptions are very different when facing uncertainty of neutral rate and of output gap.
Abstract: Emerging markets have experienced a sizeable decline in their neutral real interest rates until recently. In this paper we try to identify the main factors that contributed to it, with a focus on Brazil. We estimate an interval for Brazil’s time-varying neutral rate based on a range of structural and econometric models. We assess the implications of incorrectly estimating a time-varying neutral rate using a small structural model with a simple monetary policy instrument rule. We find that policy prescriptions are very different when facing uncertainty of neutral rate and of output gap. Our result contrasts sharply with Orphanides (2002), suggesting that the best response to neutral rate uncertainty is to ensure policy remains highly sensitive to inflation and output variations.
TL;DR: In this article, the authors show that actively stabilizing economic activity plays a more prominent role in the conduct of monetary policy when potential output is subject to hysteresis, and they augment a basic New Keynesian model by hystresis in potential output.
Abstract: We show that actively stabilizing economic activity plays a more prominent role in the conduct of monetary policy when potential output is subject to hysteresis. We augment a basic New Keynesian model by hysteresis in potential output and contrast simulation outcomes of this extended model to the standard model. We find that considering hysteresis allows for a more realistic propagation of macroeconomic shocks and persistent movements in output after monetary shocks. Our central policy implication of active output gap stabilization arises from stability analyses and welfare considerations.
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TL;DR: In this paper, the impact of the global financial crisis on estimates of potential output, and specifically the usefulness of accounting for financial effects in the estimation process, is discussed and a finance-neutral potential output measure is proposed.
Abstract: The impact of the global financial crisis on estimates of potential output, and specifically the usefulness of accounting for financial effects in the estimation process, deserves special consideration. In this paper possible paths that potential output may follow after the financial crisis are discussed and a finance-neutral potential output measure is proposed. This approach incorporates information from financial indicators in the cycle of economic activity and it is shown that when financial shocks are controlled for, the level of potential output is lower in the build-up to the financial crisis and thereafter. When compared to other frequently used methods to estimate potential output, this approach appears to deliver more reliable estimates of the output gap, particularly in real-time.
01 Jun 2014
TL;DR: In this paper, the authors provided an overview for 2013 and early 2014 in Malaysia and an analysis of structural trends in trade competitiveness, focusing on its ability to grow exports and the domestic value-added.
Abstract: This economic update provides an overview for 2013 and early 2014 in Malaysia and an analysis of structural trends in trade competitiveness. The economy overcame a weak start in 2013 to experience GDP growth through 2014. The improved performance was driven mainly by a recovery in exports, including of the long-ailing electrical and electronics sector. The outlook remains favorable and GDP is expected to continue growing through 2015. Growth will be sustained by positive external conditions, with foreign demand outweighing headwinds in domestic demand. Investment and imports of capital goods will remain robust as large projects move forward. Medium-term fiscal consolidation remains on track and the debt-to-GDP ratio has stabilized, but additional spending measures are needed for the Government to meet its 2014 deficit target. The central bank has signaled that it may have to tighten policy to avoid the build-up of financial imbalances. Labor markets are healthy, and Malaysia has enjoyed higher employment levels, real wage gains, and higher labor incomes. External risks to the economic outlook have receded, but the high share of Malaysia's foreign debt means it is sensitive to international volatility. Boosting exports to fully leverage the improved external environment will be critical for sustained growth. The report's analysis of Malaysia's trade competitiveness focuses on its ability to grow exports and the domestic value-added. Malaysia's exports had been faltering since before the Global Financial Crisis. The core electrical and electronics sector declined in the 2000s, and Malaysia's domestic value-added is relatively low due to limited domestic linkages. Exports of services have also lagged and remain an area of significant potential. Restrictive Government policies play a role in hindering export growth, although the Government has recently embarked on a liberalization of service sectors. Improving domestic value-added tasks will require addressing skill gaps. Finally, Malaysia's upcoming chairmanship in ASEAN offers concrete avenues to boost trade competitiveness.
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TL;DR: The authors analyzes historical data on revisions of actual and potential growth in the European Union and the implication of these revisions for the measurement of fiscal effort using the cyclically adjusted primary balance (CAPB).
Abstract: Potential output estimation plays a crucial role in conducting fiscal policy based on structural balances. Difficulties in estimating potential output could lead to an erroneous policy stance with a consequent impact on growth. This paper analyzes historical data on revisions ofactual and potential growth in the European Union and the implication of these revisions for the measurement of fiscal effort using the cyclically-adjusted primary balance (CAPB). It finds that revisions in output gap estimates were large, at almost 1½ percent of potential GDP on average. Revisions in potential GDP also contributed significantly to revisions in the estimated CAPB, especially during the crisis years. Given these findings and historical correlations, it proposes an indicative rule of thumb for reducing errors in the measurement of fiscal effort by factoring in that about 30 percent of revisions in actual growth capturechanges in potential growth. In other words, the standard advice of “letting automatic stabilizers operate fully” in response to a positive/negative growth shocks likely implies a strengthening/weakening of the structural position.
Posted Content•
TL;DR: In this article, the impact of the global financial crisis on estimates of potential output, and specifically the usefulness of accounting for financial effects in the estimation process, is discussed and a finance-neutral potential output measure is proposed.
Abstract: The impact of the global financial crisis on estimates of potential output, and specifically the usefulness of accounting for financial effects in the estimation process, deserves special consideration. In this paper possible paths that potential output may follow after the financial crisis are discussed and a finance-neutral potential output measure is proposed. This approach incorporates information from financial indicators in the cycle of economic activity and it is shown that when financial shocks are controlled for, the level of potential output is lower in the build-up to the financial crisis and thereafter. When compared to other frequently used methods to estimate potential output, this approach appears to deliver more reliable estimates of the output gap, particularly in real-time.
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TL;DR: In this paper, the authors propose to extend the structural unobserved component model developed by Harvey and Jaeger (1993) by including information on the financial cycle, i.e., private credit and house price developments, to explain the cyclical deviations from potential GDP.
Abstract: Traditional approaches to separate the underlying trend of potential output from cyclical developments mostly rely on the concept of nonaccelerating inflation output and are thus unable to detect upswings caused by the financial cycle, which often appear to be unsustainable in the long run In this study, we therefore propose to extend the structural unobserved components model developed by Harvey (1989) and Harvey and Jaeger (1993) by including information on the financial cycle, ie private credit and house price developments, to explain the cyclical deviations from potential GDP Thus, we are able to calculate “finance-neutral” potential output and corresponding “finance-augmented” output gaps, which take the effect of financial variables into account We apply this novel concept to four advanced economies (AT, IE, NL, US) and four economies in Central, Eastern and Southeastern Europe (BG, EE, PL, SK) in a comparative manner Our results show a considerable impact of the financial cycle on business cycle developments in most of the economies under review, both advanced and emerging Remarkably, our finance-augmented output gaps exhibit a considerably higher explanatory power for the variation of observed unemployment rates in corresponding economies than standard approaches (such as the HP filter) In other words, our results considerably strengthen the case for considering the financial sector in business cycle measurement
TL;DR: In this article, the authors used an array of techniques, including statistical filters, a multivariate model and the production function, to estimate Korea's potential growth and found that the potential growth can be maintained at a higher level by putting in place a comprehensive structural reform agenda, including increased female and youth labor force participation, liberalization of product and labor market regulation.
Abstract: Korea’s rapid growth has slowed in recent years, suggesting lower potential growth. This paper uses an array of techniques, including statistical filters, a multivariate model and the production function, to estimate Korea’s potential growth. The main finding is that trend growth has fallen from around 4¾ percent during 2000-07 to around 3¼ -3½ percent by 2011-12. Absent reforms, it is projected to fall further to around 2 percent by 2025, primarily due to declining working-age population. However, Korea’s potential growth can be maintained at a higher level by putting in place a comprehensive structural reform agenda, including increased female and youth labor force participation, liberalization of product and labor market regulation. Staff simulations suggest that such reforms could lift potential growth by around 1¼ percentage point over the next decade, maintaining potential growth at around 3¼ percent, counteracting the effect of population aging, and enabling Korea to continue to converge to income levels of the United States.
TL;DR: In this paper, the authors model optimal monetary policy under discretion in a situation in which the central bank adopts a min-max approach to policy, and show that the case for appointing a conservative central banker who puts a larger weight on inflation stabilization becomes stronger as the concern about misspecifications increases.
TL;DR: In this paper, the authors describe a parsimonious methodology employed by the World Bank for estimating potential output using the production function method and find that the reported estimates for 159 countries are robust to alternative specifications.
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TL;DR: In this paper, monetary policy stabilization in an environment where financial frictions are a relevant source of macroeconomic fluctuation is investigated, and a measure of output gap that accounts for frictions in financial market is derived.
Abstract: The recent global financial crisis illustrates that financial frictions are a significant source of volatility in the economy. This paper investigates monetary policy stabilization in an environment where financial frictions are a relevant source of macroeconomic fluctuation. We derive a measure of output gap that accounts for frictions in financial market. Furthermore we illustrate that, in the presence of financial frictions, a benevolent central bank faces a substantial trade-off between nominal and real stabilization; optimal monetary policy significantly reduces fluctuations in price and wage inflations but fails to alleviate the output gap volatility. This suggests a role for macroprudential policies.
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01 Feb 2014
TL;DR: In this article, the authors presented estimates for Malta derived from one of the most commonly used methods, i.e., the production function approach, given the uncertainty surrounding these kinds of estimates, they are compared with those made for Malta by other institutions using different methods.
Abstract: After outlining the various methods used to estimate potential output, this article presents estimates for Malta derived from one of the most commonly used methods, i.e. the production function approach. Given the uncertainty surrounding these kinds of estimates, they are compared with those made for Malta by other institutions using different methods. Based on this analysis and on a cross-country comparison, a number of policy recommendations and final observations are made.
01 Jan 2014
TL;DR: In this paper, the authors consider the negative by-products of the production process such as air pollution that could have a deleterious effect on health and productivity in the medium to long term.
Abstract: Multifactor productivity (MFP) is increasingly used in economic policy, not least to compute potential
output Most measures are based on a standard production function combining labour and capital, but do not
incorporate the negative by-products of the production process such as air pollution that could have deleterious
effect on health and productivity in the medium to long term (see for instance OECD (2014)) The failure to
account for the costs of environmental damages and the benefits associated with emission reduction impart a
bias to standard measures of MFP Ignoring these dimensions can give a misleading idea of growth prospects
over the medium to long term