CPB Approach 0,5 0 2000 2002 2004 2006 2008 2010 2012 2014 -0,5 - PowerPoint PPT Presentation

3,5 Potential growth estimate 3 Potential growth and 2,5 Structural budget balance 2 1,5 1 CPB Approach 0,5 0 2000 2002 2004 2006 2008 2010 2012 2014 -0,5 5 November 2015 Fall 06 Fall 07 Fall 08 Fall 09 Fall 10 Fall 11 Fall 12 Fall 13 Fall 14 CPB Netherlands Bureau for Economic Policy Analysis

Potential growth : CPB method and EC-method • CPB-methodology : Potential growth , gdp growth medium term – Calculation only when update of medium term forecast – Before starting elections and coalition negotations – Last exercise : 2014 Roads to Recovery • EC-methodology :Cyclical component Emu-balance – Calculation every quarter for each short term forecast – Relevant for minisitery of Finance CPB Netherlands Bureau for Economic Policy Analysis

CPB’s Potential growth in medium term • CPB – methodology : Ces production function with labour and capital • Main differences with EC-methodology – Production function market sector – Output gap government , health care = 0 – Structural unemployment (no filter on unemployment) › Replacement rate, wedge, relative prices • Potential growth and medium growth GDP – Potential growth: labour supply, technological progress – Output gap closes in 4 or 5 years? • Medium term projections based om potential and closure rule for labour market and tfp CPB Netherlands Bureau for Economic Policy Analysis

Roads to Recovery scenario’s ( published 2014) • Some lessons from 2008-2009 crisis : • Unemployment will return to ‘ normal ’ level ; can take some time • Level-shift in productivity ? Hard to estimate • Productivity growth will return to pre-crisis growth rates CPB Netherlands Bureau for Economic Policy Analysis

Closing gap 2014-> 2023 CPB Netherlands Bureau for Economic Policy Analysis

My opinion on EC-methodology • Many improvements last ten years – Tfp-filter depends on capacity utilization – Alternative nawru specifications tested – Budget elasticity's recently updated – Structural indicators for extrapolation T+10 • But – Nawru remains pro-cyclical – Sensitivity potential growth for new projections remains • Role of structural budget balance in EC-recommendations – A lot of policy debat going on CPB Netherlands Bureau for Economic Policy Analysis

Significant ‘ revisions ’ of potential growth 3,5 Dutch potential output growth estimate (EC method) 3 2,5 2 1,5 1 0,5 0 2000 2002 2004 2006 2008 2010 2012 2014 -0,5 Fall 06 Fall 07 Fall 08 Fall 09 Fall 10 Fall 11 Fall 12 Fall 13 Fall 14 CPB Netherlands Bureau for Economic Policy Analysis

Structural budget balances • Using EC-methodology for output gaps t hat’s the one relevant for policy analysis – • Main problem: significant revisions in potential growth and output gaps and level of structural budget balance – • CPB Policy brief on Structural budget balance (October 2014) Volatility is problem because this a basis for recommendations – › room for judgement in development budget balance Reduce volatility by stricter filters or structural indicators – › for structural unemployment and factor productivity Apply additional indicators for recommendations – › Ex ante effect of fiscal packages CPB Netherlands Bureau for Economic Policy Analysis

‘Solution’ of CPB to reduce revisions in potential growth • Nawru : structural indicators • End-point : adding additional years (medium-term forecast) – Short – term looks like Stability Programme (additional years) • Output gap in year t is the same for projections for the short term and medium term • Otherwise structural budget balance changes when adding additional years to projection • ‘Disadvantage’ : result depends on projection medium term => But : we also have revisions CPB Netherlands Bureau for Economic Policy Analysis