ABSTRACT
Potential output is an extremely useful but at the same time quite an ambiguous concept. Over the last thirty-five years many different definitions of potential output have been put forward, and many alternative approaches have been elaborated to quantify those concepts. Every procedure, however, can be open to criticisms for its strong assumptions on how to calculate potential output from figures for actual output, since potential output is not observable. We believe that most of the over-simplified assumptions arise from the impossibility of finding a precise and at the same time manageable measure of potential output for a modern and complex economy (i.e. an economy with many commodities, many types of labour and capital, uncertainty about future demand, variable growth rates over time and in which institutional and sociological factors also play a very important role).
