The Production Function Methodology for Calculating Potential Growth Rates & Output Gaps

Abstract:
This paper provides a detailed description of the current version of the Ecofin Council approved production function (PF) methodology which is used for assessing both the productive capacity (i.e. potential output) and cyclical position (i.e. output gaps) of EU economies. Compared with the previous 2010 paper on the same topic, there have been two significant changes to the PF methodology, namely an overhaul of the NAWRU methodology & the introduction of a new T+10 methodology.

• Primary Source

European Commission: DG Economic and Financial Affairs:European Economy: Economic Papers No.535, November 2014:The Production Function Methodology for Calculating Potential Growth Rates & Output Gaps http://ec.europa.eu/economy_finance/publications/economic_paper/2014/ecp535_en.htm

---