Title: The effect of recessions on potential output estimates: Size, timing, and determinants
Authors: Jonas Dovern - Heidelberg University (Germany) [presenting]
Christopher Zuber - Heidelberg University (Germany)
Abstract: The aim is to analyze when and how much potential output estimates are revised following recessions. We find that they are revised downward, revisions are larger after supply-driven recessions, the size of revisions are in line with results obtained by statistical filters, average revisions are equal in size to those obtained in a simulation with no hysteresis, and the recession depth and pre-recession values of the primary balance, the current account, and credit volumes are significant predictors of post-recession revisions. Our results call for improved methods for estimating potential output and suggest that average recessions do not generate substantial hysteresis effects.