The National Bank of Denmark published a working paper refining its production function framework used to assess the output gap, a key input into its view of inflationary pressures and the stance of the Danish economy. The updated approach continues to decompose total production into labour, capital and a Solow residual. Based on the model estimates, potential output, defined as the level of output the economy would achieve if prices and wages had fully adjusted to current economic conditions, has increased in recent years.
National Bank of Denmark 2026-01-21
National Bank of Denmark refines its production function framework for output gap assessment
The National Bank of Denmark released a working paper refining its production function framework to assess the output gap, indicating an increase in potential output as prices and wages adjust to current economic conditions.