In this paper, we apply the aggregate production function to approximate the path of potential output and decompose it into its determinants. Based on the decomposition we evaluate the supply side performance from a macroeconomic perspective. We use a time-varying NAIRU to derive the amount of potential labour and a newly developed measure of capital services to account for the productive impact of capital. In addition, trend total factor productivity is estimated. During 1995-2000, the growth in potential output was constrained by a gradual increase in the NAIRU, a temporary drop in investment activity and, most importantly, by only a modest rise in total factor productivity. For the period 2001-2005, we observe substantial improvements in the supply-side performance, except for the functioning of the labour market.
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Find related papers by JEL classification: E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
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