Production function approach to calculating potential growth and output gaps
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Production function approach to calculating potential growth and output gaps estimates for the EU member states and the US by Cecile Denis

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Published by European Commission, Directorate-General for Economic and Financial Affairs in Brussels .
Written in English


Book details:

Edition Notes

Includes bibliographical references.

Statementby Cecile Denis, Kieran Mc Morrow and Werner Röger.
ContributionsMcMorrow, Kieran., Röger, Werner., Commission of the European Communities. Directorate-General for Economic and Financial Affairs.
The Physical Object
Paginationiii, 89p. :
Number of Pages89
ID Numbers
Open LibraryOL20251939M

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This paper describes the methodology for calculating potential growth and output gaps using a production function approach. On the basis of the Commission services Spring economic forecasts, the approach is illustrated by providing estimates for the EU's Member States, the Euro Zone and EU15 aggregates as well as for the United States. Cécile Denis & Daniel Grenouilleau & Kieran Mc Morrow & Werner Röger, "Calculating potential growth rates and output gaps - A revised production function approach," European Economy - Economic Papers - , Directorate General Economic and Financial Affairs (DG ECFIN), European : RePEc:euf:ecopap This paper provides a detailed description of the current version of the Ecofin Council approved production function (PF) methodology which is used for assessing both the productive capacity (i.e. potential output) and cyclical position (i.e. output. This paper was in turn an update of the ECFIN Economic Paper No. () “Calculating potential growth rates & output gaps – A revised production function approach" and the ECFIN Economic Paper No. () “Production function approach to calculating potential growth and output gaps: Estimates for the EU Member States and the US”.

By definition, slow growth is the product either of a low investment ratio, or a low productivity of capital, or both. It is this equation which forms the basis of the view that faster growth in less developed countries requires more resources for investment, but by itself this does not constitute a . Kieran Mc Morrow and Werner Röger (): “Calculating potential growth rates and output gaps - A revised production function approach”, (). Measuring Business Cycles: Approximate Band-Pass Filters for Economic Time Series”, (). Output-gaps and technological progress in European Monetary Union”, Discussion Paper , Bank. production function approach have been widely used to estimate potential output and the output gap. Output gaps estimated by these conventional methods show a large positive swing during – a large negative output gap observed in narrowed sharply in and turned significantly positive in If the inputs are equilibrium values, then the production function provides an estimate of potential output and hence the output gap. This is typically made operational in the following way. First, using historical values of the labour share of income (α = ), total factor productivity is estimated as output less the weighted sum of.

Paper No “Production Function Appro ach to Calculating Potential Growth and Output Gaps” and a first draft of a “Reference Manual” which provides a “hands-on” guide for users of. growth. Next section, output gaps are generated using the production function approach. All 4 The growth accounting exercise could benefit from adjusting the labor force by human capital (see, for instance, Sosa, Tsounta, and Kim, ). Otherwise, changes in the quality of the labor force are automatically imputed to the estimated TFP measure. CiteSeerX - Document Details (Isaac Councill, Lee Giles, Pradeep Teregowda): This paper presents the current methodology used by the EU Commission to calculate potential output and output gaps. The first section of the paper provides an overview of the methodology, with special emphasis on how trends for the input components of the production function are calculated. The production function approach The production function as metaphor. The production function is a metaphorical device (Lewin ). It is a mathematical shorthand expression for an input-output process. 1 Its use was motivated primarily by an attempt to account for the way in which economies grow. It is the basis of modern growth theory and of growth accounting, of the attempt to.