The information content of capacity utilization for detrending total factor productivity

Christophe Planas, W. Roeger and Alessandro Rossi

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 3, 577-590

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.

Keywords: Cobb–Douglas production function; Markov-switching and mixture innovation models; Real-time; Revisions (search for similar items in EconPapers)
JEL-codes: C32 C51 D24 E32 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:3:p:577-590

DOI: 10.1016/j.jedc.2012.09.005

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