The Estimation of Potential Output for Italy: an Enhanced Methodology

digital

Articolo

Rivista

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI

Fascicolo

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI - 2017 - 4

Titolo

The Estimation of Potential Output for Italy: an Enhanced Methodology

Autori

Marco Cacciotti, Riccardo Conti, Roberto Morea, Serena Teobaldo

Editore

Vita e Pensiero

Formato

Articolo |

Pdf

Online da

04-2018

Doi

10.26350/000518_000002

Issn

0035-676X (stampa) | 1827-7918 (digitale)

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Descrizione Commenti dei lettori

In this paper, we identify some of the key sources of underestimation of Italy’s potential growth within the EU commonly agreed methodology for the calculation of output gaps and potential ouptut and we make two country-specific proposals to resolve or mitigate those empirical issues. Such changes concern: 1) the ‘‘statistically optimal’’ calibration of the variances of the innovation processes of the NAWRU model through a Grid Search tool that we developed; 2) the estimation of the TFP cycle via the introduction of a labour hoarding index. We show that small adjustments would significantly improve the realism of potential growth estimates and yield a wider output gap, with a slower pace of closure. Such alternative estimates would have a substantial impact on the compliance of Italian public finances with the requirements of the Stability and Growth Pact.