CPB Approach 0,5 0 2000 2002 2004 2006 2008 2010 2012 2014 -0,5 - - PowerPoint PPT Presentation

CPB Netherlands Bureau for Economic Policy Analysis

• 0,5

0,5 1 1,5 2 2,5 3 3,5 2000 2002 2004 2006 2008 2010 2012 2014

Potential growth estimate

Fall 06 Fall 07 Fall 08 Fall 09 Fall 10 Fall 11 Fall 12 Fall 13 Fall 14

Potential growth and Structural budget balance CPB Approach

5 November 2015

CPB Netherlands Bureau for Economic Policy Analysis

Potential growth : CPB method and EC-method

• CPB-methodology : Potential growth , gdp growth medium term

– Calculation only when update of medium term forecast – Before starting elections and coalition negotations – Last exercise : 2014 Roads to Recovery

• EC-methodology :Cyclical component Emu-balance

– Calculation every quarter for each short term forecast – Relevant for minisitery of Finance

CPB Netherlands Bureau for Economic Policy Analysis

CPB’s Potential growth in medium term

• CPB – methodology : Ces production function with labour and capital
• Main differences with EC-methodology

– Production function market sector – Output gap government , health care = 0 – Structural unemployment (no filter on unemployment) › Replacement rate, wedge, relative prices

• Potential growth and medium growth GDP

– Potential growth: labour supply, technological progress – Output gap closes in 4 or 5 years?

• Medium term projections based om potential

and closure rule for labour market and tfp

CPB Netherlands Bureau for Economic Policy Analysis

Roads to Recovery scenario’s (published 2014)

• Some lessons from 2008-2009 crisis :
• Unemployment will return to ‘normal’ level ; can take some time
• Level-shift in productivity ? Hard to estimate
• Productivity growth will return to pre-crisis growth rates

CPB Netherlands Bureau for Economic Policy Analysis

Closing gap 2014-> 2023

CPB Netherlands Bureau for Economic Policy Analysis

My opinion on EC-methodology

• Many improvements last ten years

– Tfp-filter depends on capacity utilization – Alternative nawru specifications tested – Budget elasticity's recently updated – Structural indicators for extrapolation T+10

• But

– Nawru remains pro-cyclical – Sensitivity potential growth for new projections remains

• Role of structural budget balance in EC-recommendations

– A lot of policy debat going on

CPB Netherlands Bureau for Economic Policy Analysis

Significant ‘revisions’ of potential growth

• 0,5

0,5 1 1,5 2 2,5 3 3,5 2000 2002 2004 2006 2008 2010 2012 2014

Dutch potential output growth estimate (EC method)

Fall 06 Fall 07 Fall 08 Fall 09 Fall 10 Fall 11 Fall 12 Fall 13 Fall 14

CPB Netherlands Bureau for Economic Policy Analysis

Structural budget balances

• Using EC-methodology for output gaps

– that’s the one relevant for policy analysis

• Main problem: significant revisions in potential growth and output gaps

– and level of structural budget balance

• CPB Policy brief on Structural budget balance (October 2014)

– Volatility is problem because this a basis for recommendations › room for judgement in development budget balance – Reduce volatility by stricter filters or structural indicators › for structural unemployment and factor productivity – Apply additional indicators for recommendations › Ex ante effect of fiscal packages

CPB Netherlands Bureau for Economic Policy Analysis

‘Solution’ of CPB to reduce revisions in potential growth

• Nawru : structural indicators
• End-point : adding additional years (medium-term forecast)

– Short –term looks like Stability Programme (additional years)

• Output gap in year t is the same for projections for the short term

and medium term

• Otherwise structural budget balance changes when adding additional

years to projection

• ‘Disadvantage’ : result depends on projection medium term

=> But : we also have revisions