The generation and implementation of ideas, or knowledge, is crucial for economic performance. We study this process in a model of endogenous growth with frictions.
Topics: Economic models; Potential output; ProductivityThis paper constructs a theory of the coexistence of fixed-term and permanent employment contracts in an environment with ex-ante identical workers and employers. Workers under fixed-term contracts can be dismissed at no cost while permanent employees enjoy labor protection.
Topics: Labour markets; Potential output; ProductivityFrom 1980 until 2007, U.S. average hours worked increased by thirteen percent, due to a large increase in female hours. At the same time, the U.S. labor wedge, measured as the discrepancy between a representative household's marginal rate of substitution between consumption and leisure and the marginal product of labor, declined substantially.
Topics: Economic models; Labour markets; Potential outputWe estimate a New Keynesian general-equilibrium open economy model to examine how changes in oil prices affect the macroeconomy. Our model allows oil price changes to be transmitted through temporary demand and supply channels (affecting the output gap), as well as through persistent supply side effects (affecting trend growth).
Topics: Economic models; Interest rates; Potential output; Productivity; Transmission of monetary policyThis paper analyses the Canadian economy for the post 1960 period. It uses an accounting procedure developed in Chari, Kehoe, and McGrattan (2006). The procedure identifies accounting factors that help align the predictions of the neoclassical growth model with macroeconomic variables observed in the data.
Topics: Labour markets; Potential output; ProductivityWhile demographic change has been an ongoing process in Canada, labour market implications of an aging population will become more acute in coming years. This article discusses the anticipated slowing in the growth of trend labour input over the coming decades with the aging of the baby boomers, declining fertility rates, and the stabilization of the labour force attachment of women. As the pool of labour shrinks, employers and governments will be looking for ways to address barriers to continued labour force participation and firms will have a greater incentive to find ways of improving labour productivity.
Topics: Economic models; Labour markets; Potential outputThis paper asks: What is the effect of government policy on output and inequality in an environment with education and labor-supply decisions? The answer is given in a general equilibrium model, consistent with the post 1960s facts on male wage inequality and labor supply in the U.S. In the model, education and labor-supply decisions depend on progressive income taxation, the education system, the social security system, and technology-driven wage differentials.
Topics: Labour markets; Potential output; ProductivityA nation's productivity is the prime determinant of its real incomes and standard of living, as well as being a major determinant of its potential output. In the short run, deviations of actual output from potential output are a useful indicator of inflationary pressures. This article is a short summary of the proceedings of the workshop, which focus on productivity and potential output growth among industrialized countries. The research is organized under three main themes: estimating potential growth; productivity and growth; and institutions, policies, and growth.
Topics: International topics; Potential output; ProductivityThe author describes results obtained by using a new methodology to estimate potential output for the United Kingdom.
Topics: Business fluctuations and cycles; Econometric and statistical methods; Potential outputThe author evaluates the ability of a variety of output-gap estimators to accurately measure the output gap in a model economy. A small estimated model of the Canadian economy is used to generate artificial data.
Topics: Business fluctuations and cycles; Econometric and statistical methods; Potential outputThe authors describe the principal results obtained from a new method applied to the estimation of potential U.S. GDP.
Topics: Business fluctuations and cycles; Econometric and statistical methods; Potential outputThis paper shows how existing band-pass filtering techniques and their extension can be applied to the common current-analysis problem of estimating current trends or cycles.
Topics: Econometric and statistical methods; Potential outputIn this paper, we measure, with Canadian data, the scope of the revisions to real-time estimates of the output gap generated with several univariate and multivariate techniques. We also make an empirical evaluation of the usefulness of the output gap estimates for predicting inflation.
Topics: Potential outputThe effective conduct of monetary policy is complicated by uncertainty about the level of potential output, and thus about the size of the monetary policy response that would be sufficient to achieve the targeted inflation rate. One possible response to such uncertainty is for the monetary authority to "probe," interpreted here as actively using its [...]
Topics: Credibility; Potential output; Uncertainty and monetary policyIn this paper we measure potential output (and consequently the output gap) using state-space models. Given that the estimated output gap is used as an indicator to measure the extent of inflationary pressures in the economy, we evaluate the use of such models for the implementation of monetary policy. Our starting point is the Gerlach [...]
Topics: Potential outputThis article examines factors that have affected the growth of potential output since the 1950s and presents three possible scenarios for its growth in the future.
The authors conclude that there will be a marked slowing in the future growth of potential output as a result of slow population growth and a reduction in labour force participation as the population ages.
Topics: Potential outputIn this paper, we discuss some methodologies for estimating potential output and the output gap that have recently been studied at the Bank of Canada. The assumptions and econometric techniques used by the different methodologies are discussed in turn, and applications to Canadian data are presented.
Topics: Potential outputThe short-run Phillips curve describes a positive short-run relationship between the level of economic activity and inflation. When the level of demand in the economy as a whole runs ahead of the level of output that the economy can supply in the short run, price pressures increase and inflation rises.
This article reviews the origins of the short-run Phillips curve with particular emphasis on the long-standing idea that the shape of this curve may be non-linear, with inflation becoming more sensitive to changes in output when the cycle of economic activity is high than when it is low. This type of non-linearity in the short-run Phillips curve, which is typically motivated by the effects of capacity constraints that limit the ability of the economy to expand in the short run, has recently attracted renewed attention. The article surveys recent research that finds some evidence of this type of non-linearity in the Phillips curve in Canada and considers the potential implications for monetary policy.
Topics: Inflation and prices; Potential output; Transmission of monetary policyIn this paper the authors show how potential output can be estimated and projected through an approach derived from the structural vector autoregression methodology. This approach is applied to the Mexican economy. To identify demand, supply and world oil shocks, the authors assume that demand shocks do not have a permanent effect on output and [...]
Topics: International topics; Potential outputThis paper examines techniques that have been used to estimate potential output and finds them wanting. We suggest a simple multivariate-filtering technique that is a generalization of the Hodrick-Prescott univariate filter. In univariate filters, only information about a variable itself is used in eliminating noise in order to obtain an estimate of the underlying trend. [...]
Topics: Potential output
