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Current Trends in the Analysis of Canadian Productivity Growth

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  • Simon van Norden

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Abstract

For more than a decade, debates over the impact of new information technologies on trend productivity growth rates have played a key role in the formulation of monetary policy in many countries, including the United States and Canada. However, the question of whether the trend growth rate of aggregate productivity has changed significantly is rarely examined formally. This paper examines the latest aggregate labour productivity data for Canada using a new testing approach specifically designed to detect recent changes in trends. In addition to showing the strength of the evidence for changes in long-run trends, it considers the effect that data revision and changing sample period has had on inference about structural changes. In an appendix, it investigates how large such changes must be before they can be detected and to what degree detection tends to lag the structural change. Evidence of a decline in the trend rate of labour productivity growth in Canada since 1990 is mixed. In particular, conclusions vary considerably from year to year as data are revised and as the accumulation of observations after purported breaks changes initial perceptions. The instability of test results suggest that policymakers need to use extreme caution in interpreting claims of changes in labour productivity trends and highlight the uncertainty that they face. Pour plus d’une décennie, les débats sur l’impact des technologies de l’information sur les taux de croissance tendanciel de la productivité ont joué un rôle clé dans la formulation de la politique monétaire dans de nombreux pays, y compris les États-Unis et le Canada. Toutefois, la question de savoir si le taux de croissance tendanciel de la productivité globale a changé considérablement est rarement examinée formellement. Cet article examine les données les plus récentes de productivité du travail pour le Canada en utilisant une approche de nouveaux tests spécialement conçus pour détecter les changements récents dans les tendances. En plus de démontrer la force de la preuve aux changements des tendances à long terme, il considère l’effet que la révision des données et la variation des périodes d’échantillonnage a eu sur l’inférence au sujet des changements structurels. Dans un appendice, il examine la taille que les changements doivent avoir avant de pouvoir être détectés et dans quelle mesure la détection a tendance à entraîner des changements structurels. L’évidence pour une baisse du taux de croissance tendanciel de la productivité du travail au Canada depuis 1990 est mitigée. En particulier, les conclusions varient considérablement d’une année à l’autre à cause de la révision des données et l’accumulation d’observations. L’instabilité des résultats des tests indique que les décideurs doivent faire preuve de prudence extrême dans l’interprétation des changements dans les tendances de la productivité au travail et mettre en évidence l’incertitude à laquelle ils sont confrontés.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 2010s-30.

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Date of creation: 01 Aug 2010
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Handle: RePEc:cir:cirwor:2010s-30

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Keywords: Productivity growth; detrending; breakpoints; structural change; data revision ; croissance de la productivité; changements structurels; révision des données;

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References

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  1. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  2. Kahn, James A. & Rich, Robert W., 2007. "Tracking the new economy: Using growth theory to detect changes in trend productivity," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1670-1701, September.
  3. Robert J. Gordon, 2003. "Exploding Productivity Growth: Context, Causes, and Implications," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 207-298.
  4. MartinNeil Baily & Robert Z. Lawrence, 2001. "Do We Have a New E-conomy?," American Economic Review, American Economic Association, vol. 91(2), pages 308-312, May.
  5. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
  6. Maury, P-M. & Pluyaud, B., 2004. "The Breaks in per Capita Productivity Trends in a Number of Industrial Countries," Working papers 111, Banque de France.
  7. Allan Crawford, 2002. "Trends in Productivity Growth in Canada," Bank of Canada Review, Bank of Canada, vol. 2002(Spring), pages 19-32.
  8. Donald W.K. Andrews, 2002. "End-of-Sample Instability Tests," Cowles Foundation Discussion Papers 1369, Cowles Foundation for Research in Economics, Yale University.
  9. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
  10. Donald W.K. Andrews & Werner Ploberger, 1992. "Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative," Cowles Foundation Discussion Papers 1015, Cowles Foundation for Research in Economics, Yale University.
  11. Georg Erber & Ulrich Fritsche, 2005. "Estimating and Forecasting Aggregate Productivity Growth Trends in the US and Germany," Discussion Papers of DIW Berlin 471, DIW Berlin, German Institute for Economic Research.
  12. Edge, Rochelle M. & Laubach, Thomas & Williams, John C., 2007. "Learning and shifts in long-run productivity growth," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2421-2438, November.
  13. Claudio E. V. Borio & Wiliam English & Andrew Filardo, 2003. "A tale of two perspectives: old or new challenges for monetary policy?," BIS Working Papers 127, Bank for International Settlements.
  14. Dale W. Jorgenson & Mun S. Ho & Kevin J. Stiroh, 2002. "Projecting productivity growth: lessons from the U.S. growth resurgence," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 1-13.
  15. Andrew J. Filardo, 1995. "Has the productivity trend steepened in the 1990s?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 41-59.
  16. Andrew Sharpe, 2004. "Recent Productivity Developments in Canada and the United States: Productivity Growth Deceleration versus Acceleration," International Productivity Monitor, Centre for the Study of Living Standards, vol. 8, pages 16-26, Spring.
  17. Hansen, Bruce E, 1997. "Approximate Asymptotic P Values for Structural-Change Tests," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 60-67, January.
  18. Benoît Robidoux & Bing-Sun Wong, 2003. "Has Trend Productivity Growth Increased in Canada?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 6, pages 47-55, Spring.
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Cited by:
  1. Jan P.A.M. Jacobs & Simon van Norden, 2010. "Lessons From the Latest Data on U.S. Productivity," CAMA Working Papers 2010-33, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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