The Collapse of Long-Run Potential GDP Estimates Continues

The Collapse of Long-Run Potential GDP Estimates Continues…

Some happy thoughts…

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CBO estimates of potential GDP closely track private-sector estimates of potential GDP.
The gap between actual and potential GDP right now is still 6.6%.
There is still lots of space for the CBO to mark down potential GDP: with no gap-closing 2017:IV potential GDP would be $15.2 trillion—8.6% below its 2007-vintage forecast.
The CBO is currently forecasting a 3.5%/year real GDP growth rate over the next five years.
To return us to the 2007-vintage potential GDP path would require a growth rate averaging 5.3%/year over the next five years.