Production Function Choice by Potential Output Estimation

The paper surveys and compares the main substitution production function types as one of the key components used by the estimations of potential output or output gap. Based on the theoretical classification of the production functions, Fuss-McFadden-Mundlak opinion and some empirical tests of the production functions in the Slovak Republic, EU countries and USA, the paper: (a) compares the possibility of using different substitution production functions by the potential output or output gap measurement/estimation, (b) evaluates the advantages and disadvantages of using three different basic production function models/groups. In addition, the paper encourages enhancement of the empirical research of production function use with the variable characteristics.