Projecting Potential Output Methods and Problems
In spite of the widespread use of the concept of potential output in economic theory and empirical applications as well as in economic policy debates, the historical background and the assumptions inherent to this concept are rarely made transparent, let
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Sebastian Hauptmeier • Friedrich Heinemann Marcus Kappler • Margit Kraus Andreas Schrimpf • Hans-Michael Trautwein Qingwei Wang
Projecting Potential Output Methods and Problems
Physica-Verlag A Springer Company
Series Editor Prof. Dr. Dr. h.c. mult. Wolfang Franz Authors Sebastian Hauptmeier Dr. Friedrich Heinemann Dr. Marcus Kappler Dr. Margit Kraus Andreas Schrimpf Prof. Dr. Hans-Michael Trautwein Qingwei Wang
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Centre for European Economic Research (ZEW) L7, 1 68161 Mannheim Germany
ISBN 978-3-7908-2176-5
e-ISBN 978-3-7908-2177-2
DOI: 10.1007/978-3-7908-2177-2 Library of Congress Control Number: 2009921248 © Physica-Verlag Heidelberg 2009 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permissions for use must always be obtained from Physica-Verlag. Violations are liable for prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Cover design: WMXDesign GmbH, Heidelberg Printed on acid-free paper springer.com
Table of Contents
1 Introduction......................................................................................................1 THEORETICAL PART .......................................................................................3 2 The Concept of Potential Output: A History of Origins...............................5 2.1 Introduction...............................................................................................5 2.2 Okun’s Contribution .................................................................................6 2.3 The New Neoclassical Synthesis ..............................................................7 2.4 Wicksell and Keynes Connections..........................................................10 2.4.1 Interest Rate Gaps and Inflation......................................................10 2.4.2 Impulse Propagation Mechanisms ..................................................11 2.4.3 Monetary Policy and the Formation of Expectations and Capital...13 2.4.4 The Term Structure of Interest Rates and the Business Cycle ........15 2.4.5 Effective Demand and Unemployment...........................................18 2.4.6 Business Cycles and Economic Growth .........................................20 2.4.7 Inflationary Gaps and Output Gaps...........................
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