Abstract

This paper studies the evolution of long-run growth rates in the G-7 countries. We identify a measure of long-run output growth rate with that rate of growth consistent with a constant unemployment rate. The methodology proposed also allows the derivation of the long-run growth rate associated with technical progress by separating the effects derived from movements in the rate of growth of the labour force. To measure its trajectories during the postwar period, we use time-varying parameter models that incorporate both stochastic volatility and a Heckman-type two-step estimation procedure that deals with the possible endogeneity problem in the econometric models. Our results show a significant decline in long-run growth rates that is not associated with the detrimental effects of the Great Recession, and that the rate of growth of technical progress appears to be behind the slowdown in long-run GDP growth.

JEL Classification: O41, O47, C15, C32.
Keywords: Secular stagnation, long-run output growth rates, long-run technical progress growth rates, time-varying parameter models with stochastic volatility, Heckman two-step bias correction