Wednesday, September 28, 2011

Productivity went south

Federal Reserve research

Economists generally agree that productivity is the primary ingredient for sustainable growth in GDP and wages. The August productivity data release provided some clarification regarding trend—or long-run—GDP growth, but the news was not good: Following a resurgence of strong productivity growth in the late 1990s and early 2000s after nearly a quarter-century of slow growth beginning in 1973, the latest reading from a trend tracking model now indicates that slow productivity growth returned in 2004. In this post, we describe our “regime-switching” productivity model and share the model’s insights into the historical profile of high- and low-growth regimes as well as the outlook for productivity.

2004 is the point at which the Fed began chasing inflation. This needs some data and thought!

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