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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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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.11.1.151
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    References listed on IDEAS

    as
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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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