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Title: Following the Trend: Tracking GDP when Long-Run Growth is Uncertain

Author(s): Juan Antolin-Diaz, Thomas Drechsel and Ivan Petrella

Publication Date: November 2014

Keyword(s): business cycles, dynamic factor models, long-run growth, mixed frequencies and real-time forecasting

Programme Area(s): International Macroeconomics

Abstract: Using a dynamic factor model that allows for changes in both the long- run growth rate of output and the volatility of business cycles, we document a significant decline in long-run output growth in the United States. Our evidence supports the view that this slowdown started prior to the Great Recession. We show how to use the model to decompose changes in long-run growth into its underlying drivers. At low frequencies, variations in the growth rate of labor productivity appear to be the most important driver of changes in GDP growth for both the US and other advanced economies. When applied to real-time data, the proposed model is capable of detecting shifts in long-run growth in a timely and reliable manner.

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Bibliographic Reference

Antolin-Diaz, J, Drechsel, T and Petrella, I. 2014. 'Following the Trend: Tracking GDP when Long-Run Growth is Uncertain'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10272