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The information content of capacity utilization for detrending total factor productivity

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Listed:
  • 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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    Keywords

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    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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