Potential Output and Economic Policy in Europe

The concept of potential output plays an important role in economic policy. It is applied in Taylor rules for monetary policy as well as in the calculation of structural budget deficits. However, as an unobservable variable potential output is subject to significant uncertainty.

Two parallel projects funded by the German Ministry of Economics and Technology have analysed and assessed existing methods of potential output estimation. The purpose of the workshop is to present and discuss the results of the research projects. Beyond the technical issues of potential output estimation the workshop serves as a forum to debate the implications of the results for economic policy in Europe.