Estimates of the Productivity Trend Using Time-Varying Parameter Techniques

Over the 1995-to-2000 period, U.S. productivity growth moved up to rates not seen in several decades. In this paper, I use time-varying parameter techniques to isolate trend from cyclical movements in productivity and to estimate the trend rate of productivity growth. My estimates suggest that trend productivity growth moved up from around 1-1/2 percent in the period from the early 1970s to the mid 1990s to about 2-1/2 percent by the final observation used in this paper, the first quarter of 2001. I also estimate the trend rate of multifactor productivity growth, and find that it has also moved up -- to 1 percent by the end of the sample -- but the pick-up is not as great as for labor productivity, with the difference largely the result of increased capital accumulation. I also test whether the trend-cycle decomposition adopted in this paper can be rejected in favor of an alternative that allows the trend to affect the cycle, and, in contrast to other recent work, find that the trend-cycle model is not rejected.