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The information content of capacity utilization for detrending total factor productivity

Listed author(s):
  • Planas, C.
  • Roeger, W.
  • Rossi, A.

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.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165188912001893
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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 3 ()
Pages: 577-590

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:3:p:577-590
DOI: 10.1016/j.jedc.2012.09.005
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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