Data on real GDP, private consumption, the GDP deflator employment, number of registered unemployed persons, capacity utilization in manufacturing, and the resident population are taken from the data base of the Swiss Institute for Business Cycle Research.
The data on the real capital stock are constructed as the cumulative values of investment in machinery and equipment and non-residential structures using the data in Lüscher and Ruoss (1996). The annual depreciation rates for machinery and equipment and non-residential structures were fixed at 20 percent and 4 percent, respectively. The measurement of the data on labor input also follows the methodology in Lüscher and Ruoss (1996), and the SNB provided series on the number of part-time workers and annual hours worked.
Total factor productivity is derived as the residual from the production function (5) in the text, where the capital stock is measured in effective units, i.e. after adjusting for capacity utilization.
Prepared by Albert Jaeger.
The time period for Germany starts in 1960 to exclude the rapid growth period in the 1950s following the rebuilding from World War II.
The reasons are unclear as to why Switzerland’s real GDP growth rate since 1976 has been markedly lower than in other industrial countries with similar per capita income levels and despite the sustained high Swiss national savings rate. However, the following factors and/or caveats are often put forward in this context. First, Switzerland’s terms of trade improved significantly since 1975 (by some 25 percent), suggesting that real GDP growth underestimates the rise in living standards. Second, the large supply shocks since the mid-1970s combined with heavily regulated labor and product markets may have inhibited the Swiss economy’s growth potential. Third, the sharp rise in women’s labor force participation rate since the mid-1970s was accompanied by a distinct trend to part-time work. And fourth, measurement problems related to the national accounts statistics could have led to downward biases in output measures.
The decomposition is based on a Cobb-Douglas production function assuming factor income shares of 0.7 and 0.3 for labor and capital income, respectively.
If the smoothing constant of the Hodrick-Prescott filter is fixed at the widely used value 1,600 (for quarterly data), the Hodrick-Prescott filter will represent an “optimal filter” (in the sense of yielding decompositions in potential output and output gap that are congruent with the statistical properties of the GDP series) if the variance η(t) is zero and the ratio between the variances of ζ(t) and GAP(t) is equal to 1,600 (Harvey and Jaeger (1993)).
The econometric software package STAMP (Structural Time Series Analyser, Modeller and Predictor) was used for estimating the unobserved component models reported in Table 3.
However, the Hodrick-Prescott filter estimates are very sensitive to the choice of data frequency and/or smoothing constant (as should be expected from the above discussion of the UC model). For example, applying the Hodrick-Prescott filter to quarterly GDP data spanning 1976.Q1-1996.Q2 and using a smoothing constant of 1,600 gives an output gap of almost zero, in line with unpublished results reported by the FFA.
The pronounced procyclicality of the labor force participation rate may suggest that some real GDP fluctuations in Switzerland are characterized by hysteresis, i.e. cyclical output fluctuations lead to changes in the size of the labor force and—through this channel—”spill over” into changes in potential output. However, standard decompositions of GDP into trend and cyclical output components rule out the possibility of hysteresis a priori. Preliminary work based on an UC model that allows the cyclical component to affect potential output with a lag, suggests that hysteresis models of GDP growth could be germane for Switzerland during this period.
Recent SNB work by Lüscher and Ruoss (1996) arrives at an estimate of potential output growth rate of 1¾ percent during 1991-95, mainly reflecting their assumption that total factor productivity follows a deterministic trend throughout the period 1976-95.
However, Akerlof, Dickens, and Perry (1996) have argued—based on U.S. evidence—that the long-run Phillips curve bends to the left (using output gaps as the slack indicators) at low inflation rates.
Previous staff work has estimated that the share of liquidity constrained consumers in Switzerland could amount to about 50 percent.