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The information content of capacity utilization for detrending total factor productivity

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  • Planas, C.
  • Roeger, W.
  • Rossi, A.

Abstract

In the production function approach, an accurate output gap assessment requires a careful evaluation of the total factor productivity (TFP) cycle. We build a common cycle model that links TFP to capacity utilization and we show that, in almost all of the pre-enlargement EU countries, using information about capacity utilization reduces both the total estimation error and the revisions in real-time estimates of the concurrent TFP cycle compared to a univariate decomposition. We also argue that relaxing the constant drift hypothesis in favour of a non-linear specification helps to offset a general tendency to underestimate the TFP cycle in the last decade.

Suggested Citation

  • Planas, C. & Roeger, W. & Rossi, A., 2013. "The information content of capacity utilization for detrending total factor productivity," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 577-590.
  • Handle: RePEc:eee:dyncon:v:37:y:2013:i:3:p:577-590 DOI: 10.1016/j.jedc.2012.09.005
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Fioramanti, Marco & Waldmann, Robert J., 2017. "The Econometrics of the EU Fiscal Governance: is the European Commission methodology still adequate?," MPRA Paper 81858, University Library of Munich, Germany.
    2. Valérie Chouard & Daniel Fuentes Castro & Delphine Irac & Matthieu Lemoine, 2014. "Assessing the losses in euro area potential productivity due to the financial crisis," Applied Economics, Taylor & Francis Journals, vol. 46(23), pages 2711-2720, August.
    3. Daragh Clancy, 2013. "Output Gap Estimation Uncertainty: Extracting the TFP Cycle Using an Aggregated PMI Series," The Economic and Social Review, Economic and Social Studies, vol. 44(1), pages 1-18.
    4. Josef Baumgartner & Serguei Kaniovski & Hans Pitlik & Margit Schratzenstaller, 2015. "Moderate Growth with High Unemployment. Medium-term Forecast for the Austrian Economy until 2020," WIFO Monatsberichte (monthly reports), WIFO, vol. 88(10), pages 779-796, October.
    5. Fioramanti, Marco, 2016. "Potential Output, Output Gap and Fiscal Stance: is the EC estimation of the NAWRU too sensitive to be reliable?," MPRA Paper 73762, University Library of Munich, Germany, revised Sep 2016.
    6. N. N., 2015. "WIFO-Monatsberichte, issue 10/2015," WIFO Monatsberichte (monthly reports), WIFO, vol. 88(10), October.
    7. Judzik, Dario & Sala, Hector, 2015. "The determinants of capital intensity in Japan and the US," Journal of the Japanese and International Economies, Elsevier, vol. 35(C), pages 78-98.

    More about this item

    Keywords

    Cobb–Douglas production function; Markov-switching and mixture innovation models; Real-time; Revisions;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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