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Capacity Utilisation, Constraintes and Price Adjustments under the Microscope

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  • Sarah Marit Lein
  • Eva Köberl

Abstract

This paper analyses the interplay of capacity utilisation, capacity constraints, demand constraints and price adjustments, employing a unique firm-level data set for Swiss manufacturing firms. Theoretically, capacity constraints limit the ability of firms to expand production in the short run and lead to increases in prices. Our results show that, on the one hand, price increases are more likely during periods when firms are faced with capacity constraints. Constraints due to the shortage of labour, in particular, lead to price increases. On the other hand, we also find evidence that firms are not reluctant to reduce prices in response to demand constraints. At the macro level, the implied capacity-utilisation Phillips curve has a convex shape during periods of excess demand and a concave shape during periods of excess supply. Our results are robust to the inclusion of proxies for changes in costs and the competitive position of firms.

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Bibliographic Info

Paper provided by Swiss National Bank in its series Working Papers with number 2009-06.

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Length: 64 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:snb:snbwpa:2009-06

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Keywords: price setting; capacity utilisation; capacity constraints; demand constraints; non-linear Phillips curve; Switzerland;

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References

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  1. Baghli, M. & Cahn, C. & Fraisse, H., 2006. "Is the Inflation-Output Nexus Asymmetric in the Euro Area?," Working papers, Banque de France 140, Banque de France.
  2. Emmanuel De Veirman, 2007. "Which Nonlinearity in the Phillips Curve? The Absence of Accelerating Deflation in Japan," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 536, The Johns Hopkins University,Department of Economics.
  3. Alvarez-Lois, Pedro P., 2004. "Capacity constraints, idiosyncratic demand uncertainty and the dynamics of inflation," Economics Letters, Elsevier, Elsevier, vol. 83(1), pages 15-21, April.
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  22. Dolado, Juan J. & Maria-Dolores, Ramon & Naveira, Manuel, 2005. "Are monetary-policy reaction functions asymmetric?: The role of nonlinearity in the Phillips curve," European Economic Review, Elsevier, Elsevier, vol. 49(2), pages 485-503, February.
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Citations

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Cited by:
  1. Eva M. Köberl, 2011. "Kapazitätsauslastung, Produktionshemmnisse und Preisanpassungen unter dem Mikroskop," KOF Analysen, KOF Swiss Economic Institute, ETH Zurich, KOF Swiss Economic Institute, ETH Zurich, vol. 5(4), pages 43-54, December.
  2. Heiner Mikosch, 2012. "Sticky Prices, Competition and the Phillips Curve," KOF Working papers, KOF Swiss Economic Institute, ETH Zurich 11-294, KOF Swiss Economic Institute, ETH Zurich.
  3. Heiner Mikosch, 2013. "Der Zusammenhang zwischen Preisen, Kapazitätsauslastung und Wettbewerb," KOF Analysen, KOF Swiss Economic Institute, ETH Zurich, KOF Swiss Economic Institute, ETH Zurich, vol. 7(1), pages 91-103, March.
  4. Andrea Lassmann, 2013. "Exchange Rate Transmission and Export Activity at the Firm Level," KOF Working papers, KOF Swiss Economic Institute, ETH Zurich 13-331, KOF Swiss Economic Institute, ETH Zurich.
  5. Eva Koeberl, 2009. "Die Inflationsneutrale Kapazitätsauslastung und die Phillips-Kurve in der Schweiz – Eine Analyse mit Mikrodaten," KOF Analysen, KOF Swiss Economic Institute, ETH Zurich, KOF Swiss Economic Institute, ETH Zurich, vol. 3(1), pages 67-78, March.

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