Working Paper: CEPR ID: DP10272
Authors: Juan Antolin-Diaz; Thomas Drechsel; Ivan Petrella
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.
Keywords: long-run growth; business cycles; productivity; dynamic factor models; real-time data
JEL Codes: E32; E23; O47; C32; E01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| declining productivity (O49) | decline in long-run output growth (O49) |
| DFM detects shifts in long-run growth (O49) | understanding of the drivers behind changes in long-run growth (O49) |
| labor productivity (J24) | GDP growth (O49) |