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Potential Growth and Business Cycle in the Spanish Economy: Implications for Fiscal Policy

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Author Info

  • Rafael Domenech

    (Economic Bureau of the Prime Minister, Spain. University of Valencia, Spain)

  • Ángel Estrada

    (Economic Bureau of the Prime Minister, Spain)

  • Luis González-Calbet

    (Economic Bureau of the Prime Minister, Spain)

Abstract

An accurately estimation of the cyclical position of an economy is a necessary condition for the success of fiscal stabilisation policies. In this paper we show that the estimation of the output gap by means of decomposing a production function produces similar results to univariate and multivariate methods, increasing their robustness and allowing us to conclude that most of the information on the economic cycle is included in the cyclical component of the unemployment rate. The results also indicate that there is reduced uncertainty about the periods when the Spanish economy has clearly been in a deep recession or in a sharp expansion. These periods have been limited and of relatively short duration. Fiscal policy should pay particular attention to these episodes, when discretionary stabilisation policies make most sense.

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File URL: http://iei.uv.es/docs/wp_internos/RePEc/pdf/iei_0705.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by International Economics Institute, University of Valencia in its series Working Papers with number 0705.

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Length: 28 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:iei:wpaper:0705

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Keywords: potential growth; business cycle; speed-limit policies;

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