This is the Fed research piece Paul Krugman was referring to this morning

 

Category: Think Tank

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One Response to “Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy”

  1. wisegrowth says:

    People will slowly wake up to the fact that potential real GDP is much lower than they think. I have been saying all year that this is case using a simpler model.
    http://effectivedemand.typepad.com/ed/2013/11/update-on-potential-real-gdp-for-3rd-quarter-2013.html

    Statisticians now have years of data since the crisis to determine the true potential real GDP. I use a model that does not rely on years of data to crunch the knowledge. The model shows quickly in real time that potential real GDP started falling drastically during the crisis. And is back on a normal and stable but lower path.
    What they find in the paper above has been readily visible with s simpler model that does not rely on statistical analysis of data. The equation to determine potential real GDP is based on labor share for demand constraint, and the utilization rate of capital for supply dynamics.

    Potential real GDP = real GDP – biz cycle amplitude constant * (capital utilization/effective labor share – 1)