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Assessing potential output growth in the euro area - a growth accounting perspective, January 2005

Author

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  • Musso, Alberto
  • Westermann, Thomas

Abstract

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. JEL Classification: E22, O47

Suggested Citation

  • Musso, Alberto & Westermann, Thomas, 2005. "Assessing potential output growth in the euro area - a growth accounting perspective, January 2005," Occasional Paper Series 22, European Central Bank.
  • Handle: RePEc:ecb:ecbops:200522
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    File URL: https://www.ecb.europa.eu/pub/pdf/scpops/ecbocp22.pdf
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    References listed on IDEAS

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    1. Sakellaris, Plutarchos & Vijselaar, Focco, 2004. "Capital quality improvement and the sources of growth in the euro area," Working Paper Series 368, European Central Bank.
    2. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters,in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230 National Bureau of Economic Research, Inc.
    3. Willman, Alpo, 2002. "Euro area production function and potential output: a supply side system approach," Working Paper Series 0153, European Central Bank.
    4. Temin, Peter, 1997. "The Golden Age of European growth: A review essay," European Review of Economic History, Cambridge University Press, vol. 1(01), pages 127-149, April.
    5. Albers, Ronald & Vijselaar, Focco, 2002. "New technologies and productivity growth in the euro area," Working Paper Series 0122, European Central Bank.
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    Citations

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    Cited by:

    1. Wolswijk, Guido & de Haan, Jakob, 2005. "Government debt management in the euro area - recent theoretical developments and changes in practices," Occasional Paper Series 25, European Central Bank.
    2. Genre, Véronique & Momferatou, Daphne & Mourre, Gilles, 2005. "Wage diversity in the euro area - an overview of labour cost differentials across industries," Occasional Paper Series 24, European Central Bank.
    3. Vesala, Jukka & Poloni, Paolo & Mörttinen, Leena & Sandars, Patrick, 2005. "Analysing banking sector conditions - How to use macro-prudential indicators," Occasional Paper Series 26, European Central Bank.
    4. Anderton, Robert & De Santis, Roberto A. & Warmedinger, Thomas & di Mauro, Filippo & Task Force of the Monetary Policy Committee of the ESCB & Ernst, Ekkehard & Sydow, Matthias & Zumer, Tina & Shen, J, 2005. "Competitiveness and the export performance of the euro area," Occasional Paper Series 30, European Central Bank.
    5. Willman, Alpo & Whelan, Karl & Altissimo, Filippo & Georgiou, Evaggelia & Sastre, Teresa & Valderrama, Maria Teresa & Sterne, Gabriel & Stocker, Marc & Weth, Mark, 2005. "Wealth and asset price effects on economic activity," Occasional Paper Series 29, European Central Bank.
    6. Sturm, Michael & Siegfried, Nikolaus, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series 31, European Central Bank.
    7. Enderlein, Henrik & Lindner, Johannes & Calvo-Gonzalez, Oscar & Ritter, Raymond, 2005. "The EU budget - how much scope for institutional reform?," Occasional Paper Series 27, European Central Bank.
    8. Dierick, Frank & Pires, Fatima & Scheicher, Martin & Spitzer, Kai Gereon, 2005. "The New Basel Capital Framework and its implementation in the European Union," Occasional Paper Series 42, European Central Bank.
    9. Thimann, Christian & Bracke, Thierry & Wölfinger, Regine & Bessone Basto, Rita & Hollensen, Ole & von Stenglin, Stephan & Fernández de Lis, Santiago & Weber, Pierre-François & Committeri, Marco & Paul, 2005. "Managing financial crises in emerging market economies - experience with the involvement of private sector creditors," Occasional Paper Series 32, European Central Bank.
    10. Schönenberger, Andreas & Schmiedel, Heiko, 2005. "Integration of securities market infrastructure in the euro area," Occasional Paper Series 33, European Central Bank.
    11. Martin, Reiner & Roma, Moreno & Vansteenkiste, Isabel, 2005. "Regulatory reforms in selected EU network industries," Occasional Paper Series 28, European Central Bank.
    12. Petschnigg, Reinhard, 2005. "The institutional framework for financial market policy in the USA seen from an EU perspective," Occasional Paper Series 35, European Central Bank.
    13. de Bondt, Gabe & Ferrando, Annalisa & Berg, Jesper & Van Rixtel, Adrian & Scopel, Silvia, 2005. "The bank lending survey for the euro area," Occasional Paper Series 23, European Central Bank.
    14. Angeloni, Ignazio & Flad, Michael & Mongelli, Francesco Paolo, 2005. "Economic and monetary integration of New Member States - helping to chart the route," Occasional Paper Series 36, European Central Bank.

    More about this item

    Keywords

    euro area; potential output growth; real GDP growth;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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