[PEN-L:29521] RE: Re: PK on current events

["Devine, James" <jdevine@xxxxxxx>]

Title: RE: [PEN-L:29513] Re: PK on current events

Michael Pollack asks:
How would one go about calculating this output gap from publicly
available figures?

the basic is to calculate potential real GDP. There are two steps here. First, add the trend in average labor productivity for the economy as a whole to the trend in the labor force. Or just calculate the trend in real GDP. (I would use some sort of polynomial approximation.) Then, in order to calculate the level of potential, choose a base year when you think the economy was at potential (1999?) and use that to figure out what the level of real GDP is along the trend line. Conservatives would choose a year when unemployment was high, so that we had above-potential production in 1999. Liberals would choose a year like 1999, so that the GDP gap is large, but it turns out that the GDP gap (potential minus actual real GDP) moves together no matter what year is chosen.

Or you could use numbers from the Office of Management & Budget or the Congressional Budget Office.
JD