Further Optimisation of the Implementation of the European Commission Method for the Estimation of the Production Potential in Switzerland

This project examines the sensitivity of output gap estimates for Switzerland to revisions, with a focus on addressing model and data uncertainties that apply to two key components of the production function methodology as put forth by the European Commission (EUCAM): total factor productivity (TFP) and labour input. Regarding the first, we analyse the usefulness of (i) direct (climate change, education spending, etc.) and (ii) indirect indicators (cyclical measures) for TFP estimates as well as the appropriateness of time-varying coefficients. Regarding the labour input, we analyse the sensitivity of trend estimates for participation rates and average hours worked to various univariate filters and examine the sensitivity of the estimates for the natural rate of unemployment to alternative inflation measures. Finally, we assess the advantages and disadvantages of an annual versus a quarterly model for estimating potential output.