Capacity utilization and the effects of energy price increases in Japan

Niizeki Takeshi ()
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Niizeki Takeshi: Cabinet Office – Economic and Social Research Institute, 3-1-1, Kasumigaseki, Chiyoda-ku 100-8970, Tokyo, Japan

The B.E. Journal of Macroeconomics, 2014, vol. 14, issue 1, 241-266

Abstract: It is well known that the standard real business cycle (RBC) model with energy cannot generate the large drops in value added following the energy price increases in the 1970s, although previous empirical studies have confirmed the important role of energy prices. In this paper, endogenous capacity utilization is incorporated into an otherwise standard RBC model as an amplification mechanism. The simulated results show that the endogenous capacity utilization successfully generates the large contraction in value added observed in the Japanese data. It is also shown that the introduction of capacity utilization produces more realistic dynamics of total factor productivity.

Keywords: capacity utilization; neoclassical growth model; relative price of energy (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1515/bejm-2013-0119

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