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An alternative demand indicator: the 'non-accelerating inflation rate of capacity utilization'

  • Niek Nahuis

This article examines the usefulness of the NAIRCU, the 'non-accelerating inflation rate of capacity utilization' as a demand indicator of inflation for eight European countries. So far the NAIRCU has been estimated for the USA only, where it serves as a useful indicator for inflation. In most European countries, deviations from the equilibrium level of capacity utilization influence inflation significantly. Further, the results not only indicate that in more recent periods the NAIRCU has shifted upward, indicating higher efficiency of the production process, but also that confidence intervals have increased over time reducing the usefulness of the NAIRCU somewhat.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 35 (2003)
Issue (Month): 11 ()
Pages: 1339-1344

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Handle: RePEc:taf:applec:v:35:y:2003:i:11:p:1339-1344
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  1. 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.
  2. C. Alan Garner, 1995. "How useful are leading indicators of inflation?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-18.
  3. Gordon, Robert J., 1976. "Recent developments in the theory of inflation and unemployment," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 185-219, April.
  4. Douglas Staiger & James H. Stock & Mark W. Watson, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter.
  5. Stephen G. Cecchetti, 1995. "Inflation Indicators and Inflation Policy," NBER Working Papers 5161, National Bureau of Economic Research, Inc.
  6. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
  7. Carol Corrado & Joe Mattey, 1997. "Capacity Utilization," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 151-167, Winter.
  8. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  9. C. Alan Garner, 1994. "Capacity utilization and U.S. inflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 5-21.
  10. W. Bolt & P.J.A. van Els, 2000. "Output Gap and Inflation in the EU," DNB Staff Reports (discontinued) 44, Netherlands Central Bank.
  11. 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.
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