This Note describes methods for estimating potential fiscal savings across five spending categories—the wage bill, pension payments, capital spending, purchases of goods and services, and social protection spending. The primary methodology compares a country’s spending levels to specific...

The output gap is a key guide for economic policymaking and analysis. It is often used to quantify inflationary pressures and thus plays a central role in Danmarks Nationalbank's assessment of the state of the Danish economy. This paper refines Danmarks Nationalbank's existing production...

Growth in potential output is expected to drop from 2.3% in 2025 to 1.2% in 2026 given slowing population growth, US tariffs and trade policy uncertainty. It is then estimated to pick up to an average of 1.5% over 2027-29 as strengthening business and government investment supports trend labour...

We present the annual update of the Bank of Canada staff estimates for global potential output growth. Growth in global potential output is expected to remain broadly stable over the projection horizon at just above 3%, underpinned by the general strength in trend productivity growth, including...

We examine how demographic factors influence potential output, focusing on how the age distribution of the working-age population and the old-age dependency ratio affect aggregate productivity. Following Feyrer (2007), we emphasize that the contribution to aggregate productivity varies by age...

Star variables, such as potential output and the neutral real interest rate, are fundamental to economic policymaking but challenging to identify due to their latent nature. Buncic, Pagan, and Robinson (2023) highlight the difficulty of identifying star variables within short macroeconomic...

We find that, while different models used to estimate the output gap in five major emerging economies show similar trends over time, they lead to different conclusions about how well the output gap can predict inflation. This suggests that the choice of model can significantly impact the...

The notion of the output gap is crucial in understanding underlying economic trends. The macroeconomic stabilization policy can only be effective for all sectors or regions of the economy if regional or sectoral output gaps are sufficiently coherent. This study proposes a new microeconometric...

This policy note analyses the impacts of climate change on a small and open economy, emphasizing its effect on monetary policy. We use a New-Keynesian model to evaluate short- and long-term effects of transition climate change shocks - a permanent and anticipated shock to total factor...

Potential growth in Niger is estimated at around 6 percent with a structurally significant contribution of labor and peaks of growth associated with higher investment in physical capital. Growth in Niger is, however, constrained by weak productivity, limited structural transformation, and...

The Bahamas is highly vulnerable to the effects of climate change, including gradual sea level rise, biodiversity loss, and intensifying hurricanes. Together, these challenges threaten to undermine the country's potential output over the long term by inflicting damages to physical assets and...

This paper revisits the potential output of the Kyrgyz Republic considering recent structural shifts and external shocks, including the pandemic and the regional conflict. Utilizing a suite of methodologies - production function, state-space models, and statistical filters - it estimates...

The purpose of this paper is to contribute to the integration of unpaid caregiving in the household into short- and long-term macroeconomic theory and, in particular, the theoretical structure of production on the supply side of the economy. The ambition of the project is to furnish a general...

Recent immigrants have been successfully absorbed into the Lithuanian labor market and legislative amendments have enabled easier migration for high-skilled workers despite the reduction of non-EU workers quota in 2025. The analysis in this note shows immigration can play a role in mitigating...

Medium-term growth prospects of Caribbean countries have weakened in recent years. We examine these trends by providing new estimates of potential GDP growth for the region. Our findings reveal a broad-based decline over time, driven by declining contributions from human capital and total factor...

This paper introduces two methodological improvements to the Hodrick- Prescott (HP) filter for decomposing GDP into trend and cycle components. First, we propose a robust univariate filter that accounts for extreme observations - such as the COVID-19 pandemic - by treating them as additive...

Uncertainty around the real-time output gap has important implications for fiscal policy. This study uses successive vintages of the World Economic Outlook for emerging markets (EMs) during 1998-2022 to examine the reaction of discretionary fiscal policy to uncertain economic cycle in real-time....

This study estimated Tunisia's potential growth with a Cobb-Douglas production function using an unobservable component model within structural changes context for the period 1989-2023. It investigated the major shocks' effects on the potential growth and its components. In contrast with most...

The sovereign debt crisis triggered a process of reforms in European economic governance that pushed for technocratic handling of budget decisions following standardized procedures, target measures, and indicators for fiscal monitoring. This shift, aimed at producing more stability and less...

The output gap, while inherently unobservable, plays a pivotal role in informing policymakers due to its significant implications for forecasting inflation rates and understanding the mechanisms of monetary policy transmission. Traditional filters frequently employed in estimating the output gap...

We study the long-run interaction between Germany’s economic growth trajectory and demographic aging. Using a comprehensive dataset, we leverage the classical production function approach to estimate potential output growth between 1970 and 2070. We account for the inherent uncertainty in our...

Determining potential output and the output gap-two inherently unobservable variables-is a major challenge for macroeconomists. This paper presents the R package sectorgap, which features a flexible modeling and estimation framework for a multivariate Bayesian state space model identifying...

The projected increase in extreme climate events in the coming decades is likely to exacerbate the existing productivity and demographic challenges facing Europe. We study the dynamic, medium-run macroeconomic effects of heatwaves, droughts and floods in 1160 EU regions through the lens of a...