Potential Growth and Business Cycle in the Spanish Economy: Implications for Fiscal Policy

Rafael Domenech, Angel Estrada and Luis González-Calbet
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Luis González-Calbet: Economic Bureau of the Prime Minister, Spain

No 705, Working Papers from International Economics Institute, University of Valencia

Abstract: An accurately estimation of the cyclical position of an economy is a necessary condition for the success of fiscal stabilisation policies. In this paper we show that the estimation of the output gap by means of decomposing a production function produces similar results to univariate and multivariate methods, increasing their robustness and allowing us to conclude that most of the information on the economic cycle is included in the cyclical component of the unemployment rate. The results also indicate that there is reduced uncertainty about the periods when the Spanish economy has clearly been in a deep recession or in a sharp expansion. These periods have been limited and of relatively short duration. Fiscal policy should pay particular attention to these episodes, when discretionary stabilisation policies make most sense.

Keywords: potential growth; business cycle; speed-limit policies (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2007-11
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:iei:wpaper:0705

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