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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.

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  • 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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    1. Val鲩e 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.
    2. Ademmer, Martin & Boysen-Hogrefe, Jens & Fiedler, Salomon & Gern, Klaus-Jürgen & Groll, Dominik & Hauber, Philipp & Jannsen, Nils & Kooths, Stefan & Potjagailo, Galina & Stolzenburg, Ulrich, 2017. "Mittelfristprojektion für Deutschland im Herbst 2017 - Deutsche Wirtschaft durchläuft Hochkonjunktur," Kieler Konjunkturberichte 36, Kiel Institute for the World Economy (IfW Kiel).
    3. Kai Carstensen & Felix Kießner & Thies Rossian, 2023. "Estimation of the TFP Gap for the Largest Five EMU Countries," CESifo Working Paper Series 10245, CESifo.
    4. Josef Baumgartner & Serguei Kaniovski & Hans Pitlik & Margit Schratzenstaller-Altzinger, 2015. "Mäßiges Wirtschaftswachstum mit hoher Arbeitslosigkeit. Mittelfristige Prognose der österreichischen Wirtschaft bis 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. Wifo, 2015. "WIFO-Monatsberichte, Heft 10/2015," WIFO Monatsberichte (monthly reports), WIFO, vol. 88(10), October.
    7. François Blondeau & Christophe Planas & Alessandro Rossi, 2021. "Output Gap Estimation Using the European Union's Commonly Agreed Methodology Vade Mecum & Manual for the EUCAM Software," European Economy - Discussion Papers 148, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    8. Guillochon, Justine & Le Roux, Julien, 2023. "Unobserved components model(s): output gaps and financial cycles," Working Paper Series 2832, European Central Bank.
    9. Boysen-Hogrefe, Jens & Fiedler, Salomon & Gern, Klaus-Jürgen & Groll, Dominik & Hauber, Philipp & Jannsen, Nils & Kooths, Stefan & Plödt, Martin & Potjagailo, Galina & Stolzenburg, Ulrich, 2016. "Mittelfristprojektion für Deutschland im Frühjahr 2016 - Potenzialwachstum vor Zwischenhoch," Kieler Konjunkturberichte 18, Kiel Institute for the World Economy (IfW Kiel).
    10. 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.
    11. Ademmer, Martin & Boysen-Hogrefe, Jens & Fiedler, Salomon & Gern, Klaus-Jürgen & Groll, Dominik & Hauber, Philipp & Jannsen, Nils & Kooths, Stefan & Potjagailo, Galina & Stolzenburg, Ulrich, 2018. "Mittelfristprojektion für Deutschland im Frühjahr 2018 - Wachstum lässt nach: Konjunktur kühlt ab," Kieler Konjunkturberichte 42, Kiel Institute for the World Economy (IfW Kiel).
    12. Michel Dumont & Glenn Rayp & Marijn Verschelde & Bruno Merlevede, 2016. "The contribution of start-ups and young firms to industry-level efficiency growth," Applied Economics, Taylor & Francis Journals, vol. 48(59), pages 5786-5801, December.
    13. 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.
    14. Boysen-Hogrefe, Jens & Fiedler, Salomon & Gern, Klaus-Jürgen & Groll, Dominik & Hauber, Philipp & Jannsen, Nils & Kooths, Stefan & Plödt, Martin & Potjagailo, Galina & Stolzenburg, Ulrich, 2015. "Mittelfristprojektion für Deutschland im Herbst 2015 - Mittelfristprojektion für Deutschland: Expansion übersteigt die Wachstumskräfte," Kieler Konjunkturberichte 12, Kiel Institute for the World Economy (IfW Kiel).
    15. Diego A. Comin & Javier Quintana Gonzalez & Tom G. Schmitz & Antonella Trigari, 2020. "A New Measure of Utilization-adjusted TFP Growth for Europe and the United States," NBER Working Papers 28008, National Bureau of Economic Research, Inc.
    16. 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.
    17. Boysen-Hogrefe, Jens & Fiedler, Salomon & Gern, Klaus-Jürgen & Groll, Dominik & Hauber, Philipp & Jannsen, Nils & Kooths, Stefan & Plödt, Martin & Potjagailo, Galina & Stolzenburg, Ulrich, 2016. "Mittelfristprojektion für Deutschland im Herbst 2016 - Potenzialwachstum überschreitet Zenit," Kieler Konjunkturberichte 24, Kiel Institute for the World Economy (IfW Kiel).
    18. Josef Baumgartner & Serguei Kaniovski & Hans Pitlik & Margit Schratzenstaller-Altzinger, 2015. "Moderate Growth with High Unemployment. Medium-term Forecast for the Austrian Economy until 2020," WIFO Bulletin, WIFO, vol. 20(27), pages 303-319, December.
    19. Constantinescu, Mihnea & Nguyen, Anh D.M., 2018. "Unemployment or credit: Which one holds the potential? Results for a small open economy with a low degree of financialization," Economic Systems, Elsevier, vol. 42(4), pages 649-664.
    20. Comin, Diego & Quintana Gonzalez, Javier & Schmitz, Tom & Trigari, Antonella, 2020. "Revisiting Productivity Dynamics in Europe: A New Measure of Utilization-Adjusted TFP Growth," CEPR Discussion Papers 15402, C.E.P.R. Discussion Papers.
    21. Susanne Maidorn, 2018. "Is there a trade-off between procyclicality and revisions in EC trend TFP estimations?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(1), pages 59-82, February.

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    More about this item

    Keywords

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

    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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