Idiosyncratic Uncertainty, Capacity Utilization and the Business Cycle

Fragnart, Jean-Francois, Omar Licandro () and Franck Portier ()
Additional contact information
Fragnart, Jean-Francois: Institute of Economics, University of Copenhagen

No 96-06, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: In a stochastic dynamic general equilibrium framework, we introduce the concept of variable capacity utilization (as opposed to the concept of capital utilization). We consider an economy where imperfectly competitive firms use a putty-clay technology and decide on their productive capacity level under uncertainty. An idiosyncratic uncertainty about the exact position of the demand curve faced by each firm explains why some productive capacities may remain idle in the sequel and why individual capacity utilization rates differ across firms. The capacity under-utilization at the aggregate level thus hides a diversity of microeconomic situations. The variablity of the capacity utilization allows for a good description of some of the main stylized facts of the busines cycle, propagates and magnifies aggregate technological shocks and generates endogenous persistence (i.e., the output growth rate displays positive serial correlation).

Date: 1996-05

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Idiosyncratic uncertainty, capacity utilization and the business cycle (1996)
Working Paper: Idiosyncratic uncertainty, capacity utilization and the business cycle
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:kud:kuiedp:9606

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Discussion Papers from University of Copenhagen. Department of Economics
Address: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark
Contact information at EDIRC.
Series data maintained by Henriette Aabo Hansen ().