The Inflation-Capacity Utilization Conundrum: Evidence from the Canadian Economy
In this paper we develop a new, simple and, at the same time, general method for the estimation of the rate of capacity utilization (CU). This method draws on the standard theory of economic growth and makes use of the structural vector autoregression (SVAR) system of equations estimating technique with long-run restrictions. The measure of CU that we derive for the Canadian economy displays a similar profile with the corresponding survey measure. The results of the econometric analysis, however, show that the explanatory content of the SVAR measure with regard to the acceleration of inflation exceeds that of the survey, especially when it comes to the post-1990 years.
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Volume (Year): 6 (2006)
Issue (Month): 2 ()
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References listed on IDEAS
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"The Dynamic Effects of Aggregate Demand and Supply Disturbances,"
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- Carol Corrado & Joe Mattey, 1997. "Capacity Utilization," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 151-167, Winter.
- Kenneth M. Emery & Chih-Ping Chang, 1997. "Is there a stable relationship between capacity utilization and inflation?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q I, pages 14-20. Full references (including those not matched with items on IDEAS)
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