Potential Output, Output Gap and Fiscal Stance: is the EC estimation of the NAWRU too sensitive to be reliable?

Marco Fioramanti

MPRA Paper from University Library of Munich, Germany

Abstract: EU fiscal governance builds on the concept of Potential Output, the highest level of production an economy can sustain without incurring in inflationary pressure. Unfortunately, Potential Output is not observable and must be estimated. There are many techniques to obtain a guess value of the potential of an economy, each of which with pros and cons. The methodology adopted by the European Commission and EU Member States, while consistent with most of the recent economic and econometric theory, is still not robust enough to give a unique and irrefutable measure on which to base EU’s fiscal framework. Should the fiscal governance continue to be based on this concept, further extension of the methodology must be implemented in order to obtain more robust estimates.

Keywords: Potential Output; Fiscal Policy; NAWRU. (search for similar items in EconPapers)
JEL-codes: C1 E37 E62 (search for similar items in EconPapers)
Date: 2016-04, Revised 2016-09
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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