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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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File URL: http://www.tandfonline.com/doi/abs/10.1080/0003684032000095947
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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. 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.
  2. Robert J. Gordon, 1975. "Recent Developments in the Theory of Inflation and Unemployment," Discussion Papers 199, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Robert J. Gordon, 1996. "The Time-Varying NAIRU and its Implications for Economic Policy," NBER Working Papers 5735, National Bureau of Economic Research, Inc.
  4. 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.
  5. C. Alan Garner, 1994. "Capacity utilization and U.S. inflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 5-21.
  6. Carol Corrado & Joe Mattey, 1997. "Capacity Utilization," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 151-167, Winter.
  7. 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.
  8. 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.
  9. Stephen G. Cecchetti, 1995. "Inflation Indicators and Inflation Policy," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 189-236 National Bureau of Economic Research, Inc.
  10. 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.
  11. 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.
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