The latest edition of the Federal Reserve Bank of New York’s Current Issues in Economics and Finance, Tracking Productivity in Real Time, is available.
Authors James Kahn and Robert Rich conclude that long-run productivity growth, also known as trend productivity growth, continues to be nearly 3 percent per year, based on a new model designed to track underlying national productivity trends.
Kahn and Rich developed their model to facilitate more timely and accurate assessments of evolving productivity trends. These trends have important implications for living standards and the nation’s overall economy, and hence for the decisions of economic policymakers.
According to the authors, their model identifies changes in productivity trends within a year or two of their onset. They observe that the model would have been especially revealing as productivity began to increase in 1996 in an early manifestation of what became known as the "new economy."
Kahn and Rich also conclude that their model, had it been in use, would have given clear indications to policymakers that despite cyclical moves in data linked to the nation’s 2001 recession, long-run productivity growth was unaffected during that period.
The authors’ model incorporates additional labor market and consumer spending data to help screen out transitory movements in productivity related to business cycle conditions.
James A. Kahn is a vice president and Robert W. Rich a research officer in the Macroeconomic and Monetary Studies Function of the Research and Statstics Group.