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New Estimates Of The U.S. Economy'S Potential Growth Rate

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  • GEORGE A. KAHN

Abstract

Using an Okun's law framework, the analysis here estimates potential growth for the 1990s as measured by both fixed‐ and chain‐weighted GDP. It then decomposes estimated potential growth rates into labor productivity growth (LPG) and labor input growth (LIG) using a regression analysis to separate secular from cyclical changes. It compares estimates of potential output and trend productivity growth for the 1990s with estimates from earlier periods. Results indicate that eliminating the substitution bias associated with fixed‐weight measures of real GDP raises estimated potential GDP growth in the 1980s but lowers it in the 1990s. A slowdown in labor force growth, with little or no change in long‐term productivity growth, largely accounts for the implied slowdown in potential growth.

Suggested Citation

  • George A. Kahn, 1996. "New Estimates Of The U.S. Economy'S Potential Growth Rate," Contemporary Economic Policy, Western Economic Association International, vol. 14(4), pages 1-16, October.
    • Handle: RePEc:bla:coecpo:v:14:y:1996:i:4:p:1-16
    DOI: 10.1111/j.1465-7287.1996.tb00629.x
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    1. Bohn, Henning, 1992. "Budget deficits and government accounting," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 37(1), pages 1-83, December.
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    Cited by:

    1. João Sousa Andrade, 2007. "Uma Aplicação da Lei de Okun em Portugal," GEMF Working Papers 2007-04, GEMF, Faculty of Economics, University of Coimbra.
    2. João Sousa Andrade, 2009. "The PIGS, does the Group Exist? An empirical macroeconomic analysis based on the Okun Law," GEMF Working Papers 2009-11, GEMF, Faculty of Economics, University of Coimbra.

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