Steady‐state growth

Emanuel Kohlscheen and Jouchi Nakajima

International Finance, 2021, vol. 24, issue 1, 40-52

Abstract: We compute steady‐state economic growth—defined as the rate of growth that the economy would converge to in the absence of new shocks. As we show, this rate can be computed in real‐time by means of a parsimonious time‐varying parameter (TVP) vector autoregression model. Our procedure offers a relatively agnostic estimation of benchmark equilibrium growth rates. Estimates show that the steady‐state gross domestic product growth rate in the case of the United States has declined from just above 3% per year in the 1990s to 2.4% at present. Results for other six advanced economies and the euro area indicate that the steady‐state growth rate, which is consistent with stable inflation and financial conditions, has been relatively stable since 2010 in most cases in spite of a recent slowdown in actual GDP growth rates. In contrast, per capita steady‐state growth rates during the last decade were typically lower than in the 1990s.

Date: 2021
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https://doi.org/10.1111/infi.12386

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Working Paper: Steady-state growth (2019)
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