Assessing the Potential Output for Switzerland: Determinants, Trends and Drivers

Based on a novel data set for the productive capital stock and labor supply, we present a quarterly estimation of the Swiss potential output. We apply the production function methodology put forth by the European Commission to estimate the trend of total factor productivity and the natural rate of unemployment, obtained by means of unobserved component models. The estimates of potential output are compared to the analogous estimates for several industrialized economies and to the trends in real GDP extracted by means of alternative time series filters. We find that potential output growth neither features excessive volatility nor procyclicality. By means of a pseudo real-time revision analysis, we show that our production function based output gap aligns well with evidence previously found in the literature.