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Potential output and microeconomic heterogeneity

Author

Listed:
  • Davide Fantino

    (Bank of Italy)

Abstract
I estimate potential output growth using a production function approach applied to individual firm-level data for Italy. The dataset includes 360,000 non-financial corporations over the period 2004-15. I compare these estimates with those obtained from aggregate data, with a view to extracting additional information on the drivers of potential output in recent years. The approach based on individual firm-level data suggests a more sluggish potential growth before the crisis and a stronger recovery afterwards; the main reason is that estimates based on aggregate data are likely to suffer from aggregation biases and endogeneity problems. I find that the contributions of labour and capital to potential output growth decline over time and that unobserved firms’ productivity explains most of the recovery after 2009; turnover has a substantial negative impact during the crisis, but a positive one afterwards. All the main economic sectors are affected by the financial crisis; potential growth in manufacturing is less damaged during the crisis and recovers afterwards; the service sector is recovering slowly, while construction firms are still not recovering.

Suggested Citation

  • Davide Fantino, 2018. "Potential output and microeconomic heterogeneity," Temi di discussione (Economic working papers) 1194, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1194_18
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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2018/2018-1194/en_tema_1194.pdf
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    References listed on IDEAS

    as
    1. Michele Loberto & Andrea Luciani & Marco Pangallo, 2018. "The potential of big housing data: an application to the Italian real-estate market," Temi di discussione (Economic working papers) 1171, Bank of Italy, Economic Research and International Relations Area.
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    Cited by:

    1. Tommaso Proietti & Marco Fioramanti & Cecilia Frale & Libero Monteforte, 2020. "A Systemic Approach to Estimating the Output Gap for the Italian Economy," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(3), pages 465-493, September.
    2. Davide Fantino & Sara Formai & Alessandro Mistretta, 2021. "Firm characteristics and potential output: a growth accounting approach," Questioni di Economia e Finanza (Occasional Papers) 616, Bank of Italy, Economic Research and International Relations Area.
    3. Nikolay Peykov, 2021. "Sectoral Output Gaps – Estimates for Bulgaria," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 1, pages 5-26, March.

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    More about this item

    Keywords

    potential output; heterogeneity; aggregation bias;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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