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Assessing the losses in euro area potential productivity due to the financial crisis

  • Chouard, V.
  • Fuentes Castro, D.
  • Irac, D.
  • Lemoine, M.

In this paper, we show that the recent financial crisis has significantly affected the potential total factor productivity (TFP) of the four largest euro area economies, as well as that of the rest of the euro area. We used a reduced-form equation of TFP, based on an approach recently developed by Cahn and Saint-Guilhem (2010). Our empirical findings show that the permanent impact on potential TFP varies across countries from -3.9 points to -1.3 points in Q2 2012. When these losses are incorporated, TFP gaps develop closely in line with capacity utilisation rates (CUR). Moreover, in the case of France, including CUR in our TFP model improves the quasi real-time reliability of TFP gap estimates.

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Paper provided by Banque de France in its series Working papers with number 468.

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Length: 24 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:bfr:banfra:468
Contact details of provider: Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/

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  1. Philippe Aghion & Philippe Askenazy & Nicolas Berman & Gilbert Cette & Laurent Eymard, 2008. "Credit constraints and the cyclicality of R&D investment: Evidence from France," PSE Working Papers halshs-00586744, HAL.
  2. Barlevy, Gadi, 2002. "The Sullying Effect of Recessions," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 65-96, January.
  3. Nicholas Oulton & María Sebastiá-Barriel, 2013. "Long and short-term effects of the financial crisis on labour productivity, capital and output," LSE Research Online Documents on Economics 48926, London School of Economics and Political Science, LSE Library.
  4. Davide Furceri & Annabelle Mourougane, 2009. "The Effect of Financial Crises on Potential Output: New Empirical Evidence from OECD Countries," OECD Economics Department Working Papers 699, OECD Publishing.
  5. Oulton,Nicholas & O'Mahony,Mary, 1994. "Productivity and Growth," Cambridge Books, Cambridge University Press, number 9780521453455.
  6. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
  7. Bonleu, A. & Cette, G. & Horny, G., 2011. "Capital Utilisation and Retirement," Working papers 343, Banque de France.
  8. Cahn, Christophe & Saint-Guilhem, Arthur, 2007. "Potential output growth in several industrialised countries: a comparison," Working Paper Series 0828, European Central Bank.
  9. Athanasios Orphanides & Simon van Norden, 1999. "The Reliability of Output Gap Estimates in Real Time," Macroeconomics 9907006, EconWPA.
  10. 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.
  11. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-68, December.
  12. Barlevy, Gadi, 2003. "Credit market frictions and the allocation of resources over the business cycle," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1795-1818, November.
  13. Ouyang, Min, 2009. "The scarring effect of recessions," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 184-199, March.
  14. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
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