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Effective demand, exogenous normal utilization and endogenous capacity in the long run. Evidence from a CVAR analysis for the US

Christian Schoder

No 1306, Working Papers from New School for Social Research, Department of Economics

Abstract: Using Cointegrated Vector Auto-Regression analysis, we provide evidence for the US manufacturing sector that production capacities adjust endogenously to current output in the long run. The rate of capacity utilization, i.e. the output-capacity ratio, is found to be stationary since production capacities respond endogenously to changes in current output and not vice versa. Hence, the principle of effective demand in a growth context, by which a permanent demand shock has a permanent growth effect, is consistent with the stylized fact of a stationary rate of capacity utilization since production capacities are endogenous in the long run.

Keywords: Effective demand; stationary utilization rate; endogenous capacity; cointegrated vector autoregression (search for similar items in EconPapers)
JEL-codes: C22 E12 E22 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2013-10
New Economics Papers: this item is included in nep-mac
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http://www.economicpolicyresearch.org/econ/2013/NSSR_WP_062013.pdf First version, 2013 (application/pdf)

Related works:
Working Paper: Effective demand, exogenous normal utilization and endogenous capacity in the long run. Evidence from a CVAR analysis for the US (2012) Downloads
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