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Estimating Germany's Potential Output

Author

Listed:
  • Gustav Horn

    (IMK at the Hans Boeckler Foundation)

  • Camille Logeay

    (IMK at the Hans Boeckler Foundation)

  • Silke Tober

    (IMK at the Hans Boeckler Foundation)

Abstract
Potential output measures a country's attainable aggregate living standard and is thus one of the most important categories of economics. It is also a key indicator for monetary and fiscal policy. Despite its prominence, however, potential output is a difficult concept to pinpoint both theoretically and even more so empirically. The article discusses the reasons for the marked revisions of potential output estimates by major international organisations. The authors then present the results of our attempts to quantify Germany's potential output based on a production function approach coupled with the Kalman-filter technique to estimate the NAIRU. The authors find that potential output and potential output growth greatly depend on how the NAIRU and potential total factor productivity are modelled. Given the difficulties involved in robustly estimating potential output, especially in real time, economic policy makers need to learn to pursue their policy objectives without reference to this variable.

Suggested Citation

  • Gustav Horn & Camille Logeay & Silke Tober, 2007. "Estimating Germany's Potential Output," IMK Working Paper 02-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:wpaper:02-2007
    as

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    File URL: http://www.boeckler.de/pdf/p_imk_wp_02_2007.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Isabell Koske & Nigel Pain, 2008. "The Usefulness of Output Gaps for Policy Analysis," OECD Economics Department Working Papers 621, OECD Publishing.
    2. Achim Truger, 2015. "Implementing the golden rule for public investment in Europe," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 138, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    3. Josef Baumgartner & Serguei Kaniovski & Markus Leibrecht, 2014. "Verhaltenes Wirtschaftswachstum, hohe Arbeitslosigkeit und Budgetkonsolidierung prägen Wirtschaftsentwicklung. Mittelfristige Prognose der österreichischen Wirtschaft bis 2018," WIFO Monatsberichte (monthly reports), WIFO, vol. 87(2), pages 117-131, February.
    4. Eckhard Hein & Achim Truger, 2011. "Fiscal Policy in the Macroeconomic Policy Mix: A Critique of the New Consensus Model and a Comparison of Macroeconomic Policies in France, Germany, the UK and Sweden from a Post-Keynesian Perspective," Chapters, in: Claude Gnos & Louis-Philippe Rochon (ed.), Credit, Money and Macroeconomic Policy, chapter 12, Edward Elgar Publishing.
    5. Achim Truger & Henner Will, 2013. "The German “debt brake”: a shining example for European fiscal policy?," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 153-188.
    6. Gustav A. Horn & Alexander Herzog-Stein & Ansgar Rannenberg & Katja Rietzler & Silke Tober & Peter Hohlfeld & Fabian Lindner & Sabine Stephan, 2013. "Krise überwunden? Prognose der wirtschaftlichen Entwicklung 2013/2014," IMK Report 86-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    7. Josef Baumgartner & Serguei Kaniovski & Hans Pitlik, 2015. "Economic Growth Remains Subdued, with High Unemployment Persisting. Medium-term Projection for the Austrian Economy until 2019," WIFO Bulletin, WIFO, vol. 20(12), pages 130-144, September.
    8. Farzana Shaheen & Azad Haider & Sajid Amin Javed, 2011. "Estimating Pakistan's Time Varying Non-Accelerating Inflation Rate of Unemployment: An Unobserved Component Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 1(4), pages 172-179.
    9. João Tovar Jalles & Youssouf Kiendrebeogo & Raphael Lam & Roberto Piazza, 2024. "Revisiting the countercyclicality of fiscal policy," Empirical Economics, Springer, vol. 67(3), pages 877-914, September.
    10. van Treeck, Till. & Sturn, Simon., 2012. "Income inequality as a cause of the Great Recession? : A survey of current debates," ILO Working Papers 994709343402676, International Labour Organization.
    11. Josef Baumgartner & Serguei Kaniovski & Hans Pitlik, 2015. "Wirtschaftswachstum weiterhin verhalten, Arbeitslosigkeit bleibt hoch. Mittelfristige Prognose der österreichischen Wirtschaft bis 2019," WIFO Monatsberichte (monthly reports), WIFO, vol. 88(1), pages 51-66, January.
    12. Achim Truger, 2014. "Austerity, cyclical adjustment and the remaining leeway for expansionary fiscal policies in the Euro area," IMK Working Paper 140-2014, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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    More about this item

    Keywords

    Potential Output; Nairu; Kalman-filter; revisions;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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