Is «Normal» Capacity Utilisation Constant over Time? Analyses with Macro and Micro Data from Business Tendency Surveys
The rate of capacity utilisation is an important business cycle indicator, as it relates directly to the stress on the current capacity to produce goods and services. From a policy perspective, technical bottlenecks indicate inflationary pressure, whereas idle capacity above normal points to a deflationary situation. Unfortunately, it is not clear which rate of capacity utilisa-tion should be regarded as normal. In addition, the level of normal capacity utilisation can change over time. When the substitutability of physical capital declines, firms will tend to keep more idle reserves to make sure they can cope with unexpected orders. On the other hand, with technical and organisational progress making production more flexible, the level of normal rate of capacity utilisation could increase. In a similar fashion, a move on to just-in-time production could lift the normal rate of capacity utilisation. These reflections imply that the rate of capacity utilisation is not, or not always, a stationary variable. However, due to the ambiguity of the theoretical predictions, it is not clear whether we should expect an increase or a decline in the level that is considered normal. In this paper we refer to business tendency surveys from 34 countries to address this question empirically. Apart from this ‘global’ per-spective, we undertake a more detailed examination of a large set of micro data referring to Switzerland. Our main findings are that the level of capacity utilisation to be considered nor-mal is indeed not constant. During the last few decades, it appears to have decreased rather than increased. Show more
PublisherKOF Swiss Economic Institute, ETH Zurich
SubjectCapacity utilisation; Normal utilisation; Non-stationarity
Organisational unit02525 - KOF Konjunkturforschungsstelle / KOF Swiss Economic Institute
NotesSee also: http://e-citations.ethbib.ethz.ch/view/pub:152442.
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