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Capital Utilization and Returns to Scale

  • Craig Burnside
  • Martin Eichenbaum
  • Sergio Rebelo

This paper studies the implications of procyclical capital utilization rates for inference regarding cyclical movements in labor productivity and the degree of returns to scale. We organize our investigation around five questions that we study using a measure of capital services based on electricity consumption: (1) Is the phenomenon of near or actual short run increasing returns to labor (SRIRL) an artifact of the failure to accurately measure capital utilization rates? (2) Can we find a significant role for capital services in aggregate and industry level production technologies? (3) Is there evidence against the hypothesis of constant returns to scale? (4) Can we reject the notion that the residuals in our estimated production functions represent technology shocks? (5) How does correcting for cyclical variations in capital services affect the statistical properties of estimated aggregate technology shocks? The answer to the first two questions is: yes. The answer to the third and fourth questions is: no. The answer to the fifth question is: a lot.

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File URL: http://www.nber.org/papers/w5125.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5125.

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Date of creation: May 1995
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Publication status: published as Bernanke, Ben S. and Julio Rotemberg (eds.) NBER Macroeconomics Annual 1995. Cambridge: MIT Press, 1995.
Handle: RePEc:nbr:nberwo:5125
Note: EFG
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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