Economy-wide capacity utilisation rate: Methodological framework and application to Swiss data

The utilisation rate of technical capacity is a key indicator of an economy's cyclical position and plays a crucial role in the estimation of production functions. Despite its importance, economy-wide measures of capacity utilisation are often not available. Instead, single sector series, typically that for manufacturing, are used as a proxy. However, this approach overlooks the heterogeneity of sectoral developments. Using Swiss data, we develop a methodology to estimate a series of aggregate capacity utilisation. Our measure covers eleven sectors, accounting for two thirds of the economy, and is mostly based on survey data retropolated back to Q1 1995. The sectoral shares of the capital stock are used to aggregate the sectoral capacity utilisation series. Several evaluations show that our aggregate series provides valuable information for the analysis of overall economic activity and is superior to the use of manufacturing capacity utilisation. Our methodology can serve as a basis for the construction of an aggregate capacity utilisation rate series for other countries.