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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.

Suggested Citation

  • Carol Corrado & Joe Mattey, 1997. "Capacity Utilization," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 151-167, Winter.
  • 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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    References listed on IDEAS

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    1. 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.
    2. 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, pages 181-242.
    3. Lucas, Robert E, Jr, 1970. "Capacity, Overtime, and Empirical Production Functions," American Economic Review, American Economic Association, pages 23-27.
    4. McCallum, Bennett T., 1994. "A semi-classical model of price-level adjustment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, pages 251-284.
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    7. 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 921-947, October.
    8. 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 860-873, July.
    9. Richard D. Raddock, 1990. "Recent developments in industrial capacity and utilization," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), pages 411-435.
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    13. 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.
    14. Bartelsman, Eric J., 1995. "Of empty boxes: Returns to scale revisited," Economics Letters, Elsevier, vol. 49(1), pages 59-67, July.
    15. 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.
    16. 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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    19. Robert H Mcguckin & Peter Zadrozny, 1988. "Long-Run Expectations And Capacity," Working Papers 88-1, Center for Economic Studies, U.S. Census Bureau.
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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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