Productivity Measurement and Monetary Policymaking During the 1990s
FRB of St. Louis Working Paper No. 2005-067A
62 Pages Posted: 8 Nov 2005
Date Written: October 2005
The acceleration of productivity growth during the latter half of the 1990s was both the defining economic event of the decade and a major topic of debate among Federal Reserve policymakers. A key aspect of the debate was the conflict between incoming aggregate data, which initially suggested little productivity gain, and anecdotal firm-level evidence which hinted at an acceleration. Some FOMC members feared an overheating economy and higher inflation; others, including the Chairman, argued that revolutionary increases in productivity were occurring and the Committee should not prematurely forgo significant future gains in real income by tightening policy. We review the difficulty of measuring productivity during periods of rapid quality change, the large magnitude of subsequent data revisions during the 1990s, and, from FOMC transcripts, the contemporary monetary policy debate within the FOMC as the decade's data evolved.
Keywords: productivity, real-time data, vintage data, monetary policymaking
JEL Classification: E01, E22, E52
Suggested Citation: Suggested Citation