Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/60647 
Year of Publication: 
2003
Series/Report no.: 
Staff Report No. 159
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
The acceleration of productivity since 1995 has prompted a debate over whether the economy's underlying growth rate will remain high. In this paper, we propose a methodology for estimating trend growth that draws on growth theory to identify variables other than productivity - namely consumption and labor compensation - to help estimate trend productivity growth. We treat that trend as a common factor with two regimes high-growth and low-growth. Our analysis picks up striking evidence of a switch in the mid-1990s to a higher long-term growth regime, as well as a switch in the early 1970s in the other direction. In addition, we find that productivity data alone provide insufficient evidence of regime changes; corroborating evidence from other data is crucial in identifying changes in trend growth. We also argue that our methodology would be effective in detecting changes in trend in real time: In the case of the 1990s, the methodology would have detected the regime switch within two years of its actual occurrence according to subsequent data.
JEL: 
O4
O51
C32
Document Type: 
Working Paper

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