Series: Occasional Papers. 2604.
Author: Rubén Domínguez-Díaz, Marta García-Rodríguez, Javier Quintana and Rubén Veiga-Duarte
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Abstract
This paper presents a methodological review for estimating the Spanish economy’s potential GDP. The review is based on three main innovations. First, it includes a more granular analysis of the sources of growth, taking into account the components of capacity utilization and the composition of production factors (capital and labor). Second, it jointly estimates a BVAR model with common trends, which makes it possible to exploit the relationships between labor market variables. Finally, it introduces several modifications, including a specific treatment of the COVID-19 period and an expansion of the active population group, with the aim of more realistically reflecting expected labor force participation in a context of a delayed effective retirement age. The resulting estimates point to higher potential growth in recent years compared with previous assessments, mainly due to more positive-than-expected demographic dynamics.