Journal Article

The challenges of estimating potential output in real time

Abstract: Potential output is an estimate of the level of gross domestic product attainable when the economy is operating at a high rate of resource use. A summary measure of the economy's productive capacity, potential output plays an important role in the Congressional Budget Office (CBO)'s economic forecast and projection. The author briefly describes the method the CBO uses to estimate and project potential output, outlines some of the advantages and disadvantages of that approach, and describes some of the challenges associated with estimating and projecting potential output. Chief among these is the difficulty of estimating the underlying trends in economic data series that are volatile, subject to structural change, and frequently revised. Those challenges are illustrated using examples based on recent experience with labor force growth, the Phillips curve, and labor productivity growth.

Keywords: Economic conditions; Economic development;

Status: Published in Proceedings of the Thirty-Third Annual Economic Policy Conference of the Federal Reserve Bank of St. Louis : Projecting Potential Growth: Issues and Measurement

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Review

Publication Date: 2009

Volume: 91

Issue: Jul

Pages: 271-290