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Should we still use the concept of potential growth ?

Author

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  • Catherine Mathieu

    (OFCE-Sciences Po)

  • Henri Sterdyniak

    (OFCE-SciencesPo)

Abstract

The concepts of potential output level and growth survived the 2008 crisis and are still widely used in economic policy debates. The paperdiscusses thetheoretical foundations and empirical assessments of these concepts. Potential output may refer to different concepts, depending on the constraints taken into account. Potential output cannot be assessed without a complex macroeconomic analysis.The paper discusses recent empirical work on potential growth estimates, especially how theyintroduce abreakin potential growth after the 2008 crisis, and how the methods used often justifypro-cyclical policies. For the future,the problem isnot a slowdown in potential growth butthe inability of developed economies,underglobalisation constraints, to reach afull-employment growth

Suggested Citation

  • Catherine Mathieu & Henri Sterdyniak, 2015. "Should we still use the concept of potential growth ?," Documents de Travail de l'OFCE 2015-30, Observatoire Francais des Conjonctures Economiques (OFCE).
  • Handle: RePEc:fce:doctra:1530
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    Keywords

    potential growth; euro area governance;

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • 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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