Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/201907 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7681
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Using European Commission real-time data, we show that potential output (PO) estimates were substantially and persistently revised downwards after the Great Recession. We decompose PO revisions into revisions of the capital stock, trend labor, and trend total-factor productivity (TFP). Initially, trend TFP revisions contribute most to the overall PO revisions while all three components are almost equally important in the longer run. Revisions of the capital stock happen quickly while revisions of trend labor, mainly driven by revisions of the non-accelerating wage rate of unemployment (NAWRU), are made gradually. The relative contributions of the components to overall PO revisions differ systematically across countries. This suggests that heterogeneous policies are needed to push different countries back to their previous growth paths.
Subjects: 
potential output
trend
output gap
hysteresis
EC
JEL: 
E32
Document Type: 
Working Paper
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