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The Inflation-Capacity Utilization Conundrum: Evidence from the Canadian Economy

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  • Tsoulfidis, L.
  • Dergiades, Th.

Abstract

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.

Suggested Citation

  • Tsoulfidis, L. & Dergiades, Th., 2006. "The Inflation-Capacity Utilization Conundrum: Evidence from the Canadian Economy," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(2).
    • Handle: RePEc:eaa:aeinde:v:6:y:2006:i:2_6
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    References listed on IDEAS

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    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. Viv B. Hall & C. John McDermott, 2007. "Regional business cycles in New Zealand: Do they exist? What might drive them?," Papers in Regional Science, Wiley Blackwell, vol. 86(2), pages 167-191, June.
    3. Carol Corrado & Joe Mattey, 1997. "Capacity Utilization," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 151-167, Winter.
    4. Chih-Ping Chang & Kenneth M. Emery, 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.
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    More about this item

    Keywords

    Capacity Utilization; Inflation; Economic Growth; SVAR;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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