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Predicting Medium-Term TFP Growth in the United States: Econometrics vs ‘Techno-Optimism’

Published online by Cambridge University Press:  01 January 2020

Nicholas Crafts*
Affiliation:
University of Warwick
Terence C. Mills*
Affiliation:
Loughborough University

Abstract

We analyse TFP growth in the US business sector using a basic unobserved component model where trend growth follows a random walk and the noise is a first order autoregression. This is fitted using a Kalman-filter methodology. We find that trend TFP growth has declined steadily from 1.5 to 1.0 per cent per year over the past 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 productivity pessimists simply because recent TFP growth has been weak.

Type
Notes and Contributions
Copyright
Copyright © 2017 National Institute of Economic and Social Research

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Footnotes

We thank Michael McMahon, Nicholas Oulton and an anonymous referee for helpful comments and John Fernald for sharing his data with us. The usual disclaimer applies.

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