Marco Buti, Nicolas Carnot, Atanas Hristov, Kieran Mc Morrow , Werner Roeger, Valerie Vandermeulen, 23 September 2019

Criticisms have recently been raised on the usefulness of the EU’s commonly agreed methodology for estimating potential output and output gaps. Whilst mindful of the uncertainty which inevitably surrounds an unobservable variable such as potential output, this column argues that much of the criticism is both conceptually and empirically inaccurate, as well as being neglectful of the plausibility of the EU’s potential output estimates compared to other business cycle indicators. In addition, many of the criticisms focus to an excessive degree on the role of potential output in EU fiscal surveillance, with the practice of surveillance being much more flexible and less rigid than many commentators tend to suggest.

Robert Dixon, Guay Lim, Jan van Ours, 03 May 2016

Okun’s law describes the positive empirical relationship between unemployment and the output gap. This column explores how this relationship differs depending on age and gender, taking into account different labour market institutions. Using data for 20 OECD countries over three decades, the authors find that the effect of Okun’s relationship decreases with age. Labour market institutions have similar effects on the unemployment rates of all groups, though magnitudes vary by age and gender.


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