Hostname: page-component-78c5997874-v9fdk Total loading time: 0 Render date: 2024-11-04T23:16:41.241Z Has data issue: false hasContentIssue false
  • English
  • Français

Trend Output and the Output Gap in the UK

Published online by Cambridge University Press:  26 March 2020

Ray Barrell  and
Simon Kirby
Get access Rights & Permissions [Opens in a new window]

Extract

This note looks at estimates of the current scale of the output gap in the UK and at the factors that affect estimates of the trend rate of growth. These issues are central to the debate on macroeconomic policy, both in the short and the long run. The speed at which the economy returns to full capacity, along with the scale of the output gap, will be important factors affecting average growth over the next five years. In the longer term, trend growth at full capacity is not immutable, but rather depends upon the rate of labour augmenting technical progress and the growth of the labour force. In the medium term these factors can be added to by temporary bursts of capital augmenting technical progress and by changes in the user cost of capital that may change the optimal capital-output ratio. Other factors, such as the cost of materials, also affect potential output. Over the past few months there has also been a significant rise in oil prices, and we judge this to have a strong permanent component which will reduce trend growth in the short term and trend output in the longer term. Its implications are more fully discussed in Barrell, Delannoy and Holland in this Review.

Type
The UK Economy
Information
National Institute Economic Review , Volume 215 , January 2011 , pp. F63 - F74
Copyright
Copyright © 2011 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Barrell, R. (2004), ‘The design of macro economic policy in Europe’, NIESR, mimeo, ESRC Seminar, Bloomberg's, 24 June.Google Scholar
Barrell, R. (2009), ‘Long-term scarring from the financial crisis’, National Institute Economic Review, 210, October, pp. 36–8.CrossRefGoogle Scholar
Barrell, R., Davis, E.P., Karim, D. and Liadze, I. (2010), ‘The effects of banking crises on output in OECD countries’, National Institute discussion Paper 358.Google Scholar
Barrell, R., FitzGerald, J. and Riley, R. (2010), ‘EU enlargement and migration: assessing the macroeconomic impacts’, Journal of Common Market Studies, 48, 2, pp. 373–95.CrossRefGoogle Scholar
Barrell, R., Gottschalk, S., Kirby, S. and Orazgani, A. (2009), ‘Projections of migration inflows under alternative scenarios for the world eocnomy’, Department of Communities and Local Government economics paper no. 3.Google Scholar
Barrell, R., Holland, D. and Karim, D. (2010), ‘Tighter financial regulation and its impact on global growth’, National Institute Economic Review, 213, July, pp. F39–44.CrossRefGoogle Scholar
Barrell, R., Holland, D. and Kirby, S. (2010), ‘Retirement and economic recovery’, National Institute Economic Review, 213, July, pp. F4–8.CrossRefGoogle Scholar
Barrell, R., Holland, D. and Liadze, I. (2010), ‘Accounting for UK economic performance 1973-2009’, National Institute Discussion Paper no. 359.Google Scholar
Barrell, R. and Kirby, S. (2008), ‘The budgetary implications of global shocks to cycles and trends in output’, ESRI Budget Outlook, October, Dublin.Google Scholar
Barrell, R., Kirby, S. and Orazgani, A. (2011), ‘The macroeconomic impact from extending working lives’, Department for Work and Pensions Economics Paper no. 95.Google Scholar
Barrell, R. and Sefton, J. (1995), ‘Output gaps: some evidence for the UK, France and Germany, National Institute Economic Review, 151, February.CrossRefGoogle Scholar
Bell, D.N.F. and Blanchflower, D.G. (2010), ‘UK unemployment in the Great Recession’, National Institute Economic Review, 214, October, pp. R3–25.CrossRefGoogle Scholar
Cecchetti, S.G., Kohler, M. and Upper, C. (2009), ‘Financial crises and economic activity’, NBER Working Paper no. 15379.Google Scholar
Cerra, V. and Saxena, S.C. (2008), ‘Growth dynamics: the myth of economic recovery’, American Economic Review, 98:1, pp. 439–57.CrossRefGoogle Scholar
Christiano, L.J. and FitzGerald, T.J. (2003), ‘The band pass filter’, International Economic Review, 44, 2, pp. 435–65.CrossRefGoogle Scholar
Dicks, M. (2010), ‘The effect of the financial crisis on the UK's productive capacity: surveying the damage’, presentation to 2010 Green Budget launch, Institute for Fiscal Studies.Google Scholar
Haskell, J., Clayton, T., Goodridge, P., Pesole, A., Barnett, D., Chamberlin, G., Jones, R., Khan, K. and Turvey, A. (2009), ‘Innovation, knowledge spending and productivity growth in the UK’, Interim report for NESTA Innovation Index Programme, November.Google Scholar
Haugh, D., Ollivaud, P. and Turner, D. (2009), ‘The macroeconomic consequences of banking crises in OECD countries’, OECD Economics Department Wiorking Paper no. 683, Paris, OECD.Google Scholar
Holland, D., Kirby, S. and Whitworth, R. (2010), ‘An international comparison of employment in recovery’, National Institute Economic Review, 214, October, pp. F35–40.CrossRefGoogle Scholar
IMF (2010), United Kingdom: Selected Issues Paper, IMF country report 10/337.CrossRefGoogle Scholar
OECD (2010), ‘Prospects for growth and imbalances beyond the short term’, Economic Outlook, 2010/1, Paris, OECD.Google Scholar
Office for National Statistics (2009), ‘The labour market and retirement’, Pension Trends, London, ONS, http://www.statistics.gov.uk/downloads/theme_compendia/pensiontrends/Pension_Trends_ch04.pdf.Google Scholar
Oulton, N. (2010), ‘Long-term impolications of the ICT revolution: applying the lessons of growth theory and growth accounting’, CEP discussion paper no. 1027, November.Google Scholar