IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

How Large Are Returns to Scale in the U.S.? A View Across the Boundary

Listed author(s):
  • Thomas A. Lubik

There is considerable disagreement in the empirical macro literature as to the degree of returns to scale in U.S. output. While many studies find evidence of a small degree of increasing returns, standard errors are typically large. This issue is of importance for assessing the possibility of equilibrium indeterminacy and sunspot-driven business cycles. The theoretical literature has shown that even small degrees of increasing returns can lead to non-uniqueness. Whereas earlier studies are based on production function regressions and single equation methods, this paper takes a structural and general equilibrium perspective. I argue that the question of indeterminacy is a property of a system and cannot be conclusively answered by single equation methods. I therefore estimate a canonical business cycle model for the U.S. economy including variable factor utilization. Based on the methodology developed by Lubik and Schorfheide (2004) I use Bayesian methods to estimate the model over the entire parameter space, allowing for sunspot equilibria generated by increasing returns to scale in production. I find that returns to scale are increasing, but not considerably so. However, I do not find evidence of indeterminacy. When abstracting from variable capital utilization, estimates of the scale parameter increase, but again indeterminacy can be rejected. This paper therefore suggests that increasing returns to scale are not the source for sunspot fluctuations in U.S. business cycles

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: main text
Download Restriction: no

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 280.

in new window

Date of creation: 11 Aug 2004
Handle: RePEc:sce:scecf4:280
Contact details of provider: Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:sce:scecf4:280. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.