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Tracking the Slowdown in Long-Run GDP Growth

Listed author(s):
  • Juan Antolin-Diaz

    ()

    (Department of Macroeconomic Research, Fulcrum Asset Management)

  • Thomas Drechsel

    ()

    (Centre for Macroeconomics (CFM)
    Economics Department London School of Economics (LSE))

  • Ivan Petrella

    ()

    (Bank of England
    Department of Economics, Mathematics and Statistics Birkbeck College
    Centre for Economic Policy Research (CEPR))

Using a dynamic factor model that allows for changes in both the long-run growth rate of output and the volatility of business cycles, we document a significant decline in long-run output growth in the United States. Our evidence supports the view that most of this slowdown occurred prior to the Great Recession. We show how to use the model to decompose changes in long-run growth into its underlying drivers. At low frequencies, a decline in the growth rate of labor productivity appears to be behind the recent slowdown in GDP growth for both the US and other advanced economies. When applied to real-time data, the proposed model is capable of detecting shifts in long-run growth in a timely and reliable manner.

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File URL: http://www.centreformacroeconomics.ac.uk/Discussion-Papers/2016/CFMDP2016-04-Paper.pdf
File Function: Revised version, 2016
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Paper provided by Centre for Macroeconomics (CFM) in its series Discussion Papers with number 1604.

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Length: 45 pages
Date of creation: Oct 2014
Date of revision: Jan 2016
Handle: RePEc:cfm:wpaper:1604
Contact details of provider: Web page: http://www.centreformacroeconomics.ac.uk/

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