Policy Article

Estimating potential output and the output gap – An analysis of the EU approach and suggestions for improvement (original publication in German)

Kieler Beiträge zur Wirtschaftspolitik, 19

Measures of potential output and the output gap are of great importance for policy-makers who need to assess the cyclical position of the economy and its productive capacity. They play an essential role in the European Stability and Growth Pact and in the debt cap of the German constitution. This study analyzes the measures of potential output and the output gap derived from the European Commission’s estimation approach and suggests methodological improvements.