Tracking the new economy: using growth theory to detect changes in trend productivity

James Kahn () and Robert Rich

Proceedings, 2003, issue Nov

Abstract: The acceleration of productivity since 1995 has prompted a debate over whether the economy's underlying growth rate will remain high. In this paper, we draw on growth theory to identify variables other than productivity - namely consumption and labor compensation - to help estimate trend productivity growth. We treat that trend as a common factor with two \\"regimes\\" high-growth and low-growth. Our analysis picks up striking evidence of a switch in the mid-1990s to a higher long-term growth regime, as well as a switch in the early 1970s in the other direction. In addition, we find that productivity data alone provide insufficient evidence of regime changes; corroborating evidence from other data is crucial in identifying changes in trend growth. We also argue that our methodology would be effective in detecting changes in trend in real time: In the case of the 1990s, the methodology would have detected the regime switch within one quarter of its actual occurrence according to subsequent data.

Keywords: Productivity (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (20)

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Journal Article: Tracking the new economy: Using growth theory to detect changes in trend productivity (2007)
Working Paper: Tracking the new economy: using growth theory to detect changes in trend productivity (2003)
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