Predicting Medium-Term TFP Growth in the United States: Econometrics vs ‘Techno-Optimism’

Nicholas Crafts and Terence C. Mills

National Institute Economic Review, 2017, vol. 242, R60-R67

Abstract: We analyse TFP growth in the US business sector using a basic unobserved component model where trend growth follows a random walk and the noise is a first order autoregression. This is fitted using a Kalman-filter methodology. We find that trend TFP growth has declined steadily from 1.5 to 1.0 per cent per year over the past 50 years. Nevertheless, recent trends are not a good guide to actual medium-term TFP growth. This exhibits substantial variations and is quite unpredictable. Techno-optimists should not give best to productivity pessimists simply because recent TFP growth has been weak.

Date: 2017
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