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Potential Output in Theory and Practice: A Revision and Update of Okun's Original Method

Claudia Fontanari, Antonella Palumbo () and Chiara Salvatori

Structural Change and Economic Dynamics, 2020, vol. 54, issue C, 247-266

Abstract: This paper challenges the mainstream view of potential output and enquires into the supposed effects of Great Recession on potential growth. We identify in the demand-led growth perspective a more promising theoretical framework both to define the notion of potential output and to gauge the long-term effects of a demand slow down. In view of the poor reliability of standard estimates of potential output, we also propose an alternative calculation.

Keywords: Potential output; Okun's law; unemployment; demand-led growth (search for similar items in EconPapers)
JEL-codes: C22 E11 E12 E23 E24 E60 O40 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:54:y:2020:i:c:p:247-266

DOI: 10.1016/j.strueco.2020.04.008

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