This paper estimates potential output for seven countries using a multivariate
version of the Hodrick-Prescott filter in which observations on inflation are
used to help separate trend from cyclical movements in output. The potential
series are estimated first on an aggregate basis, and then by disaggregating
output into three major components: labor productivity, the
employment-population ratio, and population. Potential levels of productivity
and the employment-population ratios are calculated using the multivariate
filter and combined with actual population to derive an alternative,
"disaggregated" estimate of potential. The method is then applied to
forecasting potential growth.
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Last update: July 19, 2001