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Productivity and Potential Output Before, During, and After the Great Recession

  • John Fernald

U.S. labor and total-factor productivity growth slowed prior to the Great Recession. The timing rules out explanations that focus on disruptions during or since the recession, and industry and state data rule out "bubble economy" stories related to housing or finance. The slowdown is located in industries that produce information technology (IT) or that use IT intensively, consistent with a return to normal productivity growth after nearly a decade of exceptional IT-fueled gains. A calibrated growth model suggests trend productivity growth has returned close to its 1973-1995 pace. Slower underlying productivity growth implies less economic slack than recently estimated by the Congressional Budget Office. As of 2013, about ¾ of the shortfall of actual output from (overly optimistic) pre-recession trends reflects a reduction in the level of potential.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20248.

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Date of creation: Jun 2014
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Publication status: published as Productivity and Potential Output before, during, and after the Great Recession , John G. Fernald. in NBER Macroeconomics Annual 2014, Volume 29 , Parker and Woodford. 2015
Handle: RePEc:nbr:nberwo:20248
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