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Federal Reserve Bank of San Francisco
Working Paper Series
Productivity and Potential Output Before, During, and After the Great Recession
John G. Fernald

U.S. labor and total-factor productivity growth slowed prior to the Great Recession. The timing rules 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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John G. Fernald, Productivity and Potential Output Before, During, and After the Great Recession, Federal Reserve Bank of San Francisco, Working Paper Series 2014-15, 05 Jun 2014.
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Keywords: Potential output; productivity; information technology; business cycles; multi-sector growth models
DOI: 10.24148/wp2014-15
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