Predicting medium-term TFP growth in the United States: econometrics vs ‘techno-optimism’

Publication date: 1 Nov 2017 | Publication type: National Institute Economic Review | Theme: Trade, Investment & Productivity | External Author(s): Crafts, N; Mills, T C | JEL Classification: E32, N12, O47 | Journal: National Institute Economic Review Issue 242 | Publisher: Sage Publications, London

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.

Keyword tags: 
productivity slowdown
secular stagnation
TFP growth