What do we know and not know about potential output?

Susanto Basu () and John Fernald ()

No 2009-05, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Potential output is an important concept in economics. Policymakers often use a one-sector neoclassical model to think about long-run growth, and often assume that potential output is a smooth series in the short run--approximated by a medium- or long-run estimate. But in both the short and long run, the one-sector model falls short empirically, reflecting the importance of rapid technical change in producing investment goods; and few, if any, modern macroeconomic models would imply that, at business cycle frequencies, potential output is a smooth series. Discussing these points allows us to discuss a range of other issues that are less well understood, and where further research could be valuable.

Keywords: Input-output analysis; Productivity; Monetary policy (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-mac
Date: 2009
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Journal Article: What do we know (and not know) about potential output? (2009)
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