DP12029 Trend TFP Growth in the United States: Forecasts versus Outcomes

Author(s):	Nicholas Crafts, Terence C Mills
Publication Date:	May 2017
Keyword(s):	productivity slowdown, secular stagnation, TFP growth
JEL(s):	E32, N12, O47
Programme Areas:	Economic History, Macroeconomics and Growth
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=12029

We analyze TFP growth in the U.S. business sector using a basic unobserved component model where trend growth follows a random walk and the noise is a first-order auto-regression. This is fitted using a Kalman-filter methodology. We find that trend TFP growth has declined steadily from 1.5 per cent to 1.0 per cent per year over the last 50 years. Nevertheless, recent trends are not a good guide to actual medium-term TFP growth. This exhibits substantial variations and is quite unpredictable. Techno-optimists should not give best to secular stagnationists simple because recent TFP growth has been weak.