Idiosyncratic uncertainty, capacity utilization and the business cycle
AbstractIn a stochastic dynamic general equilibrium framework, we introduce the concept of variable capacity utilization (as opposed to the concept of capital utilization). We consider an economy where imperfectly competitive firms use a putty-clay technology and decide on their productive capacity level under uncertainty. An idiosyncratic uncertainty about the exact position of the demand curve facedby each firm explains why sorne productive capacities may remain idle in the sequel and why individual capacity utilization rates differ across firms. The capacity underutilization at the aggregate level thus hides a diversity of microeconomic situations. The variability of the capacity utilization allows for a good description of sorne of the main stylized facts of the business cycle, propagates and magnifies aggregate technological shocks and generates endogenous persistence (Le., the output growth rate displays positive serial correlation).
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Universidad Carlos III de Madrid in its series Open Access publications from Universidad Carlos III de Madrid with number info:hdl:10016/3897.
Date of creation:
Date of revision:
Contact details of provider:
Web page: http://www.uc3m.es
Business Cycle; Capacity Utilization; Idiosyncratic shocks; Mark-ups; Propagation Mecanism;
Other versions of this item:
- Jean-Francois Fragnart & Omar Licandro & Franck Portier, 1996. "Idiosyncratic Uncertainty, Capacity Utilization and the Business Cycle," Discussion Papers 96-06, University of Copenhagen. Department of Economics.
- Portier, Franck & Fagnart, Jean-François & Licandro, Omar, 1996. "Idiosyncratic uncertainty, capacity utilization and the business cycle," CEPREMAP Working Papers (Couverture Orange) 9607, CEPREMAP.
- NEP-ALL-2011-07-13 (All new papers)
- NEP-BEC-2011-07-13 (Business Economics)
- NEP-CBA-2011-07-13 (Central Banking)
- NEP-DGE-2011-07-13 (Dynamic General Equilibrium)
- NEP-MAC-2011-07-13 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1993.
"Labor Hoarding and the Business Cycle,"
NBER Working Papers
3556, National Bureau of Economic Research, Inc.
- Omar LICANDRO & Luis A. PUCH, 2000.
"Capital Utilization, Maintenance Costs and the Business Cycle,"
Annales d'Economie et de Statistique,
ENSAE, issue 58, pages 143-164.
- Licandro, Omar & Puch, Luis A., . "Capital utilization: maintenance costs and the business cycle," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/3917, Universidad Carlos III de Madrid.
- Licandro, Omar, 1992.
"A Non-Walrasian General Equilibrium Model with Monopolistic Competition and Bargaining,"
Discussion Papers (IRES - Institut de Recherches Economiques et Sociales)
1992004, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Licandro, Omar, . "A non-walrasian general equilibrium model with monopolistic competition and bargaining," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/5818, Universidad Carlos III de Madrid.
- Bils, Mark & Cho, Jang-Ok, 1994.
"Cyclical factor utilization,"
Journal of Monetary Economics,
Elsevier, vol. 33(2), pages 319-354, April.
- Mark Bils & Jang-Ok Cho, 1993. "Cyclical factor utilization," Discussion Paper / Institute for Empirical Macroeconomics 79, Federal Reserve Bank of Minneapolis.
- Hall, Robert E, 1988.
"The Relation between Price and Marginal Cost in U.S. Industry,"
Journal of Political Economy,
University of Chicago Press, vol. 96(5), pages 921-47, October.
- Robert E. Hall, 1988. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
- Malinvaud, E., 1987. "Investment and the inflation-unemployment tradeoff in a macroeconomic rationing model with monopolistic competition: By H.R. Sneessens," European Economic Review, Elsevier, vol. 31(3), pages 808-811, April.
- Magill, M. & Quinzii, M., 1988.
"Real Effects Of Money In General Equilibrium,"
8826, Southern California - Department of Economics.
- King, Robert G & Plosser, Charles I & Rebelo, Sergio T, 2002.
"Production, Growth and Business Cycles: Technical Appendix,"
Society for Computational Economics, vol. 20(1-2), pages 87-116, October.
- Portes, Richard, 1987. "Investment and the inflation-unemployment tradeoff in a macroeconomic rationing model with monopolistic competition: By H.R. Sneessens," European Economic Review, Elsevier, vol. 31(3), pages 812-815, April.
- Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
- Cogley, T. & Nason, J.M., 1992. "Do Real Business Cycles Models Pass the Nelson-Plosser Test?," UBC Departmental Archives 92-24, UBC Department of Economics.
- Fagnart, Jean-Francois & Licandro, Omar & Sneessens, Henri, . "Capacity utilization dynamics and market power," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/3906, Universidad Carlos III de Madrid.
- Sneessens, Henri R., 1987. "Investment and the inflation-unemployment tradeoff in a macroeconomic rationing model with monopolistic competition," European Economic Review, Elsevier, vol. 31(3), pages 781-808, April.
- Bresnahan, Timothy F & Ramey, Valerie A, 1993. "Segment Shifts and Capacity Utilization in the U.S. Automobile Industry," American Economic Review, American Economic Association, vol. 83(2), pages 213-18, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Contact person).
If references are entirely missing, you can add them using this form.