What do we know (and not know) about potential output?

Susanto Basu and John Fernald ()

Review, 2009, vol. 91, issue Jul, 187-214

Abstract: Potential output is an important concept in economics. Policymakers often use a one-sector neoclassical model to think about long-run growth, and they 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 the long run, the one-sector model falls short empirically, reflecting the importance of rapid technological 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 the authors to discuss a range of other issues that are less well understood and where further research could be valuable.

Keywords: Economic development; Economic conditions (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (14)

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