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Should we still use the concept of potential growth ?

Catherine Mathieu () and Henri Sterdyniak ()

No 2015-30, Sciences Po publications from Sciences Po

Abstract: The concepts of potential output level and growth survived the 2008 crisis and are still widely used in economic policy debates. The paperdiscusses thetheoretical foundations and empirical assessments of these concepts. Potential output may refer to different concepts, depending on the constraints taken into account. Potential output cannot be assessed without a complex macroeconomic analysis.The paper discusses recent empirical work on potential growth estimates,especially how they introduce a break in potential growth after the 2008 crisis, and how the methods used oftenjustify procyclical policies. For the future,the problem isnot a slowdown in potential growth butthe inability of developed economies,underglobalisation constraints, to reach afull-employment growth.

Keywords: potential growth; euro area governance (search for similar items in EconPapers)
JEL-codes: E63 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mac
Date: 2015-12
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