Tfpr: Dispersion and Cyclicality

39 Pages Posted: 7 Dec 2020 Last revised: 26 Jun 2022

See all articles by Russell Cooper

Russell Cooper

European University Institute - Economics Department (ECO)

Ozgen Ozturk

European University Institute

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Date Written: December 2020


This paper studies the determinants of TFPR, a revenue based measure of total factor productivity. Recent business cycle models are built upon the assumption of countercyclical dispersion in TFPR. But, the distribution of TFPR is endogenous, dependent upon exogenous shocks and the endogenous determination of prices. An overlapping generations model with monopolistic competition and state dependent pricing is constructed to study the factors that shape the TFPR distribution. The empirical focus is on three key data patterns: (i) countercyclical dispersion of TFPR , (ii) countercyclical dispersion of price changes and (iii) countercyclical frequency of price adjustment. The analysis uncovers two interesting scenarios in which these moments are matched. One arises in the presence of shocks to the dispersion of TFPQ, a quantity based measure of total factor productivity, along with a negatively correlated change in the mean of TFPQ. The second arises if the monetary authority responds to shocks to the dispersion of TFPQ by “leaning against the wind”. Due to state contingent pricing, the model is nonlinear. Simple correlations mask these nonlinearities of the underlying economy. The real effects of monetary innovations are state dependent, with monetary policy less effective in recessions.

Suggested Citation

Cooper, Russell and Ozturk, Ozgen, Tfpr: Dispersion and Cyclicality (December 2020). NBER Working Paper No. w28174, Available at SSRN:

Russell Cooper (Contact Author)

European University Institute - Economics Department (ECO) ( email )

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Ozgen Ozturk

European University Institute

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