Different concepts of potential GDP

For serious macroeconomists, the magnitude (or existence) of the output gap is a central factor for determining the appropriate policy actions (see for instance Weidner and Williams). In several recent posts, I've discussed the variety of approaches to estimating the output gap [0] [1]. A recent symposium on Projecting Potential Growth published by the Federal Reserve Bank of St. Louis is an excellent resource for anybody who wants to think seriously and carefully about the challenges in estimating this variable. In the lead article entitled "What Do We Know (And Not Know) About Potential Output?", the authors John Fernald and Susanto Basu write:

To keep the discussion manageable, we confine our discussion of potential output to neoclassical growth models with exogenous technical progress in the short and the long run; we also focus exclusively on the United States. We make

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In today's Economix post, Casey Mulligan argues that the greater than predicted unemployment numbers should not be ascribed to the negative effect of the stimulus, but rather to bigger than anticipated negative shocks.

We cannot blame the Obama administration for failing to predict June's 9.5 percent unemployment rate. That result just shows the size of the shocks hitting the economy: Even the best forecasters can miss the unemployment rate by almost two percentage points, even when forecasting fewer than six months ahead.

That makes sense, and is in line with my previous post. But he then argues that since we’ve seen little stimulus effect so far, we should cancel the stimulus, since it'd be costly on a per-job basis (and in any case, he believes the effect on GDP to be small [1]). These are interesting assertions meriting further analysis.

Stock-Flow Mismatch

We're all free to use whatever multipliers we

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From CBO Director Doug Elmendorf’s testimony yesterday, some numbers relevant to the ongoing debate over fiscal policy efficacy [1] [2]:

Table 5: from The State of the Economy and Issues in Developing an Effective Policy Response,” testimony of CBO Director Douglas Elmendorf, January 27, 2009.

Omani banking sector is strong and has not been affected by the current global financial crisis according to Hamoud Bin Sangour Al Zadjali, executive president of CBO. br /br /Last year, the total assets of Oman's commercial banks rose 39.2 per cent to 13.7 billion Omani riyals (Dh130.15 billion). Aggregate deposits grew 38.7 per cent.

For the week, the Dow gained 1.8% (down 13.9% y-t-d) and the S&P500 increased 0.8% (down 14.8%). The Utilities rose 2.6% (down 14.8%), and the Morgan Stanley Consumer index gained 2.2% (down 5.1%). The Transports jumped 3.8% (up 11%), and the Morgan Stanley Cyclical index advanced 3.3% (down 13.2%). The small cap Russell 2000 added 0.2% (down 5.1%), and the S&P400 Mid-Caps increased 0.4% (down 8.1%). The NASDAQ100 was about unchanged (down 15.2%), while the Morgan Stanley High Tech index slipped 0.4% (down 15.6%). The Semiconductors lost 2.9% (down 21.2%). The Street.com Internet Index declined 0.3% (down 11%), while the NASDAQ Telecommunications index gained 1.7% (down 10.2%). The Biotechs gained 1.0% (up 3%). The financial stocks were mixed. With Lehman collapsing, the Broker/Dealers sank 11.6% (down 35.9%). Meanwhile, the Banks gained 3.2% (down 19.9%). With Bullion sinking $37, the ...

Article Source Over the past few days, I've been trying to identify appropriate measures of the output gap (and trying to relate that to exchange rate changes). As I've done so, I've come to realize that (1) it's a difficult thing to do, and (2) interesting stories come out of different measures. The easiest thing to do is to pull down the CBO's measure (interpolated to quarterly frequency). This yields the following picture (in logs): Figure 1: Log real GDP (Ch.2000$, SAAR) (blue line), and log potential GDP. NBER-defined recession dates shaded gray. Source: BEA, GDP release of 29 May 2008, and CBO, Update of CBO's Economic Forecast (February 2008), data [xls], and NBER. Two observations: (i) recessions do not necessarily coincide with negative output gaps (although they do seem to coincide with the beginning of periods of ...