The Cyclical Sensitivity in Estimates of Potential Output / Olivier Coibion, Yuriy Gorodnichenko, Mauricio Ulate.

Format:

Book

Author/Creator:

Coibion, Olivier.

Contributor:

National Bureau of Economic Research.

Gorodnichenko, Yuriy.

Ulate, Mauricio.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23580.

NBER working paper series no. w23580

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

The fact that most of the persistent declines in output since the Great Recession have parlayed into equivalent declines in measures of potential output is commonly interpreted as implying that output will not return to previous trends. Using a variety of estimates of potential output for the U.S. and other countries, we show that these estimates respond gradually not only to supply-side shocks but also respond to demand shocks that have only transitory effects on output. Observing a revision in measures of potential output therefore says little about whether concurrent changes in actual output are likely to be permanent or not. In contrast, some structural VAR methodologies can avoid these shortcomings, even in real-time. These approaches point toward a more limited decline in potential output following the Great Recession.

Notes:

Print version record

July 2017.