John Fernald and Kyle Matoba of the San Francisco Fed have just released a utilization adjusted total factor productivity series. The importance of this development is clearly laid out by the authors:

This Economic Letter looks at potential output from the perspective of growth accounting, which assesses some of the key supply-side factors determining sustainable, noninflationary potential output. Perhaps most importantly, we find that the underlying pace of efficiency improvements -- "technological progress," broadly construed—has remained strong during the recession. This strength offers a reason for cautious optimism about potential output and the long-term health of the American economy. More immediately, stronger potential relative to the same observed output implies substantial slack in the economy.

Essentially, the authors have accounted for the fact that the utilization rate of the factors of production change over the business cycle. Succintly put:

Firms, for example, may hesitate to fire skilled workers they will need once the economy

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