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Capacity Utilization

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  • Carol Corrado
  • Joe Mattey

Abstract

This article reviews how the Federal Reserve measures capacity utilization and explains why capacity utilization has been, and likely will remain, a useful indicator of inflationary pressures and business cycle fluctuations. The authors also explain why economic developments, such as the pace of technological change, increased international trade, and a shift in the share of the workforce to service-producing industries, have not substantially affected the indicator value of capacity utilization. A microtheoretic description of the concept of capacity utilization is offered. Evidence on the plausibility of microeconomic structural interpretations of the relation between capacity utilization and price changes is reviewed.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.11.1.151
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 11 (1997)
Issue (Month): 1 (Winter)
Pages: 151-167

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Handle: RePEc:aea:jecper:v:11:y:1997:i:1:p:151-67

Note: DOI: 10.1257/jep.11.1.151
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  1. Shea, John, 1993. "The Input-Output Approach to Instrument Selection," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 145-55, April.
  2. Shea, John, 1993. "Do Supply Curves Slope Up?," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 1-32, February.
  3. Lewis M. Segal & Daniel G. Sullivan, 1995. "The temporary labor force," Economic Perspectives, Federal Reserve Bank of Chicago, issue Mar, pages 2-19.
  4. Lawrence R. Klein, 1958. "The Measurement of Capacity," Cowles Foundation Discussion Papers 49, Cowles Foundation for Research in Economics, Yale University.
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  7. William Kan & Reva Krieger & P.A. Tinsley, 1989. "The long and short of industrial strength pricing," Finance and Economics Discussion Series 99, Board of Governors of the Federal Reserve System (U.S.).
  8. Robert H Mcguckin & Peter Zadrozny, 1988. "Long-Run Expectations And Capacity," Working Papers 88-1, Center for Economic Studies, U.S. Census Bureau.
  9. Bennett T. McCallum, 1994. "A Semi-Classical Model of Price Level Adjustment," NBER Working Papers 4706, National Bureau of Economic Research, Inc.
  10. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  11. Rose McElhattan, 1985. "Inflation, supply shocks and the stable-inflation rate of capacity utilization," Economic Review, Federal Reserve Bank of San Francisco, issue Win, pages 45-63.
  12. Lucas, Robert E, Jr, 1970. "Capacity, Overtime, and Empirical Production Functions," American Economic Review, American Economic Association, vol. 60(2), pages 23-27, May.
  13. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
  14. Matthew D. Shapiro, 1989. "Assessing the Federal Reserve's Measures of Capacity and Utilization," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 181-242.
  15. James A. Orr, 1994. "Has excess capacity abroad reduced U.S. inflationary pressures?," Quarterly Review, Federal Reserve Bank of New York, issue Sum, pages 101-106.
  16. Richard D. Raddock, 1990. "Recent developments in industrial capacity and utilization," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 411-435.
  17. Stephen G. Cecchetti, 1995. "Inflation Indicators and Inflation Policy," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 189-236 National Bureau of Economic Research, Inc.
  18. Paul W. Bauer, 1990. "A reexamination of the relationship between capacity utilization and inflation," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 2-12.
  19. Aizcorbe, Ana M, 1992. "Procyclical Labour Productivity, Increasing Returns to Labour and Labour Hoarding in Car Assembly Plant Employment," Economic Journal, Royal Economic Society, vol. 102(413), pages 860-73, July.
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