How Fast Can the New Economy Grow? A Bayesian Analysis of the Evolution of Trend Growth

ASU Economics Working Paper No. 16/2001

28 Pages Posted: 27 Jul 2001

See all articles by Timothy Cogley

Timothy Cogley

Leonard N. Stern School of Business - Department of Economics

Date Written: March 2001

Abstract

This paper uses consumption data to estimate the trend growth rate for the "new economy." The analysis starts with the assumption that a trend break in GDP should be accompanied by a trend break in consumption. But because consumption is forward looking and smoother than GDP, it should be easier to detect a trend break in the former. The forward looking nature of consumption allows us to incorporate the private expectations of U.S. households about the new economy. The relative smoothness makes it easier to separate changes in trend growth from ordinary cyclical movements. The evidence confirms that there has been an increase in trend growth over the last 5 years, but the increase seems rather modest. The new economy is likely to grow more rapidly than in the 1970s, but not as fast as in the 1950s or early 1960s.

Keywords: Bayesian analysis, multiple time series model, forecasting

JEL Classification: C11, C32, C53

Suggested Citation

Cogley, Timothy, How Fast Can the New Economy Grow? A Bayesian Analysis of the Evolution of Trend Growth (March 2001). ASU Economics Working Paper No. 16/2001, Available at SSRN: https://ssrn.com/abstract=275980 or http://dx.doi.org/10.2139/ssrn.275980

Timothy Cogley (Contact Author)

Leonard N. Stern School of Business - Department of Economics ( email )

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