The production function methodology for calculating potential growth rates and output gaps

As a result of the financial crisis, cyclically corrected indicators have taken on a greater degree of significance and are firmly back at the forefront of economic policy making. This heightened level of policy interest not only reflects the anxiousness of policy makers to avoid the well-documented mistakes made in assessing the supply side impact of historical crises but is also linked with the primary role of such indicators in calculating cyclically adjusted budget balances & in designing successful "exit strategies" from the current crisis (and especially the requirement to unwind the large increases in EU public debt).

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