Recessions and Potential Output: Disentangling Measurement Errors, Supply Shocks, and Hysteresis Effects
Dovern J, Zuber C (2020)
Publication Language: English
Publication Type: Journal article, Original article
Publication year: 2020
Journal
Book Volume: 122
Pages Range: 1431-1466
Journal Issue: 4
URI: https://onlinelibrary.wiley.com/doi/epdf/10.1111/sjoe.12385
DOI: 10.1111/sjoe.12385
Abstract
This paper investigates expert revisions of potential output (PO) estimates following recessions. Using data from the Organisation for Economic Co‐operation and Development (OECD), we show that downward revisions are substantial, permanent, and mostly driven by supply shocks. In contrast, PO estimates do not significantly react to demand shocks. Revisions are also partly caused by mismeasurement of PO before recessions. In particular, we show that the length of the preceding boom and pre‐recession values of the current account balance and credit volumes are correlated with post‐recession PO revisions. Our results call for improved methods for estimating PO and provide evidence against the existence of substantial hysteresis following demand shocks.
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APA:
Dovern, J., & Zuber, C. (2020). Recessions and Potential Output: Disentangling Measurement Errors, Supply Shocks, and Hysteresis Effects. Scandinavian Journal of Economics, 122(4), 1431-1466. https://doi.org/10.1111/sjoe.12385
MLA:
Dovern, Jonas, and Christopher Zuber. "Recessions and Potential Output: Disentangling Measurement Errors, Supply Shocks, and Hysteresis Effects." Scandinavian Journal of Economics 122.4 (2020): 1431-1466.
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