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Assessing potential output growth in the euro area - a growth accounting perspective, January 2005

Author

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  • Musso, Alberto
  • Westermann, Thomas

Abstract

For monetary policy purposes it is useful to apply a concept of potential output growth that looks through the fluctuations inherent in most model based estimates. Growth accounting can be a useful tool in this respect, given its focus on average developments in real GDP growth and supply side factors over medium to longer-term horizons. This paper describes the assumptions and measurement issues underlying the growth accounting framework and applies it to euro area data for the period 1980 to 2003. It shows that growth in measured total factor productivity has been the single most important contributor to real GDP growth over this period. However, the contribution to growth from this factor declined between the 1980s and the 1990s, while that from labour increased. Looking forward, the projected demographic developments imply a reduction in average real GDP growth in the coming decades unless compensation is achieved from other supply-side factors. JEL Classification: E22, O47

Suggested Citation

  • Musso, Alberto & Westermann, Thomas, 2005. "Assessing potential output growth in the euro area - a growth accounting perspective, January 2005," Occasional Paper Series 22, European Central Bank.
    • Handle: RePEc:ecb:ecbops:200522
    Note: 93259
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpops/ecbocp22.pdf
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    References listed on IDEAS

    as
    1. Sakellaris, Plutarchos & Vijselaar, Focco, 2004. "Capital quality improvement and the sources of growth in the euro area," Working Paper Series 368, European Central Bank.
    2. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230, National Bureau of Economic Research, Inc.
    3. Vijselaar, Focco & Backé, Peter, 2002. "New technologies and productivity growth in the euro area," Working Paper Series 122, European Central Bank.
    4. Willman, Alpo, 2002. "Euro area production function and potential output: a supply side system approach," Working Paper Series 153, European Central Bank.
    5. Temin, Peter, 1997. "The Golden Age of European growth: A review essay," European Review of Economic History, Cambridge University Press, vol. 1(1), pages 127-149, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    euro area; potential output growth; real GDP growth;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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