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

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  • Niek Nahuis

Abstract

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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  • Niek Nahuis, 2003. "An alternative demand indicator: the 'non-accelerating inflation rate of capacity utilization'," Applied Economics, Taylor & Francis Journals, vol. 35(11), pages 1339-1344.
  • Handle: RePEc:taf:applec:v:35:y:2003:i:11:p:1339-1344
    DOI: 10.1080/0003684032000095947
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    References listed on IDEAS

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    1. 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.
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    7. Carol Corrado & Joe Mattey, 1997. "Capacity Utilization," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 151-167, Winter.
    8. 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.
    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. 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.
    11. W. Bolt & P.J.A. van Els, 1998. "Output gap and inflation in the EU," WO Research Memoranda (discontinued) 550, Netherlands Central Bank, Research Department.
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    Cited by:

    1. Aleksejs Meļihovs & Anna Zasova, 2009. "Assessment of the natural rate of unemployment and capacity utilisation in Latvia," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 9(2), pages 25-46, December.
    2. International Monetary Fund, 2008. "Republic of Lithuania; Selected Issues," IMF Staff Country Reports 08/140, International Monetary Fund.
    3. Enrique Alberola & Ángel Estrada & Daniel Santabárbara, 2014. "Growth and imbalances in Spain: a reassessment of the output gap," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 5(2), pages 333-356, August.
    4. Cynthia Bansak & Norman Morin & Martha Starr, 2007. "Technology, Capital Spending, And Capacity Utilization," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 631-645, July.
    5. Eva M. Köberl & Sarah M. Lein, 2011. "The NIRCU and the Phillips curve: an approach based on micro data," Canadian Journal of Economics, Canadian Economics Association, vol. 44(2), pages 673-694, May.
    6. Nienke Oomes & Oksana Dynnikova, 2006. "The Utilization-Adjusted Output Gap; Is the Russian Economy Overheating?," IMF Working Papers 06/68, International Monetary Fund.
    7. Enrique Alberola & Ángel Estrada & Daniel Santabárbara, 2013. "Growth beyond imbalances. Sustainable growth rates and output gap reassessment," Working Papers 1313, Banco de España;Working Papers Homepage.

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