Revisiting productivity dynamics in Europe: a new measure of utilization-adjusted TFP growth

We compute new estimates of Total Factor Productivity (TFP) growth in the five largest European economies. Our estimates account for positive profits and use firm surveys to proxy for unobserved changes in factor utilization. These novelties have a major impact: our estimated TFP growth series are substantially less volatile and less cyclical than the ones obtained with standard methods. Based on our approach, we provide annual industry-level and aggregate TFP series, as well as the first estimates of profit and utilization-adjusted quarterly TFP growth in Europe.