The U.S. Capacity Utilization Rate: A New Estimation Approach

René Lalonde

Staff Working Papers from Bank of Canada

Abstract: The recent strengh of the U.S. economy and historically low rates of inflation have sparked considerable debate among economists and Federal Reserve officials. In order to better explain the recent behaviour of inflation, some observers have raised the concept of a non-accelerating inflation capacity utilization rate (NAICU). In this study, the author presents a new methodology to estimate the NAICU. A simple structural vector autoregression, including industrial production, the inflation rate, and the long-run real interest rate, is used to identify production capacity. Results show that production capacity is consistent with stable trend inflation. Using simple Phillips curves, out-of-sample forecast exercises show that the capacity utilization rate generated by the methodology presented in this paper seems to outperform the one now published by the Fed.

Keywords: Business; fluctuations; and; cycles (search for similar items in EconPapers)
JEL-codes: E32 E37 (search for similar items in EconPapers)
Pages: 27 pages
Date: 1999
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2010/05/wp99-14.pdf

Related works:
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: https://EconPapers.repec.org/RePEc:bca:bocawp:99-14

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().