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Assessing potential output growth in the euro area - a growth accounting perspective

Listed author(s):
  • Alberto Musso
  • Thomas Westermann

For monetary policy purposes it is useful to apply a concept of potential output growth that looks through the fluctuations inherent in most model based estimates. Growth accounting can be a useful tool in this respect, given its focus on average developments in real GDP growth and supply side factors over medium to longer-term horizons. This paper describes the assumptions and measurement issues underlying the growth accounting framework and applies it to euro area data for the period 1980 to 2003. It shows that growth in measured total factor productivity has been the single most important contributor to real GDP growth over this period. However, the contribution to growth from this factor declined between the 1980s and the 1990s, while that from labour increased. Looking forward, the projected demographic developments imply a reduction in average real GDP growth in the coming decades unless compensation is achieved from other supply-side factors.

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Paper provided by European Central Bank in its series Occasional Paper Series with number 22.

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Length: 42 pages
Date of creation: Jan 2005
Handle: RePEc:ecb:ecbops:20050022
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