The paper examines the theoretical foundations of empirical research on potential output. Based on the idea that long-run potential output is supply-determined and is a strong attractor of actual output, current estimates often amount simply to assuming that potential output is the trend of the actual output series. The absence of any systematic output-inflation relationship in actual data explains the variability and uncertainty typically characterizing estimates. From a demand-led growth perspective, potential output is instead regarded as endogenously determined by the actual growth path. It is defined as a short-period notion and independently of inflation data. Policy implications are considered.
Palumbo, A. (2013). Potential output and demand-led growth. In Levrero E S, Palumbo A, Stirati A (a cura di), Sraffa and the Reconstruction of Economic Theory, Vol. II: Aggregate Demand, Policy Analysis and Growth. Basingstoke:Palgrave Macmillan. Palgrave MacMillan.
Potential output and demand-led growth
PALUMBO, Antonella
2013-01-01
Abstract
The paper examines the theoretical foundations of empirical research on potential output. Based on the idea that long-run potential output is supply-determined and is a strong attractor of actual output, current estimates often amount simply to assuming that potential output is the trend of the actual output series. The absence of any systematic output-inflation relationship in actual data explains the variability and uncertainty typically characterizing estimates. From a demand-led growth perspective, potential output is instead regarded as endogenously determined by the actual growth path. It is defined as a short-period notion and independently of inflation data. Policy implications are considered.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
