Robustness of the Trend-Cycle Decomposition of Total Factor Productivity in EUCAM

This paper analyses the robustness of the trend-cycle decomposition of total factor productivity which is involved in the estimation of potential growth and output gap in the EU Member States in application of the EU’s Commonly Agreed Methodology.

Highlights:

• The trend-cycle decomposition of Total Factor Productivity is found robust to variations in the prior distribution of model parameters, in the set of survey indicators used to proxy capacity utilisation, and in the specification of the process that drives the cyclical fluctuations of productivity.
• Focusing on vintage Autumn 2022, the trend-cycle decomposition is found more stable in the 14 'old' Member States compared to the post-2004 Accession Countries, and for each country the potential growth estimates show  more firmness than trend-cycle ones.
• Across vintages, the variations in model assumptions explored do not lead to improvements in the stability of trend-cycle estimates.

Information and identifiers

Discussion Paper 198. January 2024. Brussels. PDF. 36pp. Tab. Graph. Bibliogr. Free.

KC-BD-23-015-EN-N (online)
ISBN 978-92-68-01763-0 (online)
ISSN 2443-8022 (online)
doi: 10.2765/11828 (online)

JEL classification: C52, E32, D24.

Disclaimer

European Economy Discussion Papers are written by the staff of the European Commission’s Directorate-General for Economic and Financial Affairs, or by experts working in association with them, to inform discussion on economic policy and to stimulate debate. The views expressed in this document are solely those of the author(s) and do not necessarily represent the official views of the European Commission.