New model improves accuracy of TFP cycle estimation using capacity utilization.
The article shows that linking capacity utilization to total factor productivity (TFP) helps in accurately estimating the TFP cycle. By using a bivariate model, the researchers found that incorporating information about capacity utilization leads to more stable TFP cycle estimates compared to traditional methods. This improvement was observed in twelve European countries, suggesting that considering capacity utilization can enhance our understanding of TFP trends.