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Technology, Capital Spending, and Capacity Utilization

  • Cynthia Bansak

    (Department of Economics, Center for Public Economics , San Diego State University)

  • Norman Morin

    (Federal Reserve Board)

  • Martha Starr

    (American University)

Capacity utilization has been a valuable indicator of inflationary pressure. Yet recent technological changes have made relationships between inputs and outputs more flexible, possibly eroding the predictive value of the utilization rate. This paper shows that, conceptually, technological change could either lower average utilization by making it cheaper to hold excess capacity, or raise utilization by making further changes in capacity less costly. Using data on 111 manufacturing industries from 1974 to 2000, we find that, for the average industry, technological change has had a modest but appreciable effect, shaving 0.2 to 2.3 percentage points off the utilization rate.

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Paper provided by San Diego State University, Department of Economics in its series Working Papers with number 0010.

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Length: 28 pages
Date of creation: Mar 2003
Date of revision:
Handle: RePEc:sds:wpaper:0010
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  1. Anderson, T. W. & Hsiao, Cheng., 1980. "Estimation of Dynamic Models with Error Components," Working Papers 336, California Institute of Technology, Division of the Humanities and Social Sciences.
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  10. Valerie A. Ramey & Matthew D. Shapiro, 2001. "Displaced Capital: A Study of Aerospace Plant Closings," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 958-992, October.
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  12. Matthew D. Shapiro, 1989. "Assessing the Federal Reserve's Measures of Capacity and Utilization," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 181-242.
  13. Johannes Van Biesebroeck, 2003. "Productivity Dynamics with Technology Choice: An Application to Automobile Assembly," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 167-198, January.
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  15. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
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