Friday, November 11, 2011

Nominal GDP in the Seventies

Was nominal GDP growth stable in the seventies?

The following chart shows nominal GDP and the trend.

It doesn't seem that much worse than the Great Moderation. The growth rates are substantially different. The trend growth rate of nominal GDP in the Great Moderation was 5.4 percent. In the seventies, it was 10 percent.

Using the CBO estimates of potential output, the GDP gaps were quite large during the period.

There is a pattern between the gaps between nominal GDP and the trend of nominal GDP and real output and potential output.

While the NGDP gap between nominal GDP and trend and the RGDP gap between Real GDP usually move together, it looks like treating the seventies as a period with a constant trend growth rate of nominal GDP is a mistake. Irresponsible out-of-control monetary policy is probably a better description.


  1. Bill
    The trend growth on NGDP during the 70s was not 10%. The trend growth was NOT stationary, unlike during the GM, when trend gowth at around 5.5% was stationary.
    The non stationarity of NGDP growth during the 70s is, as you surmise, the result of "irresponsible, out of control MP"

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