Some observations on endogeneity in the normal rate of capacity utilisation

Brett Fiebiger
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Brett Fiebiger: Independent Analyst

Review of Keynesian Economics, 2020, vol. 8, issue 3, 385-406

Abstract: As is well known, the closure of the canonical Neo-Kaleckian model is an endogenous rate of capacity utilisation. To allay concerns of Harrodian instability one response has been to endogenise the normal rate to effective demand pressures. Recent contributions have stressed microfoundations for an adjustment in the normal rate towards the actual rate. The new approach focuses on shiftwork and redefines capacity utilisation as the average workweek of capital. This paper examines whether the new concept of capacity utilisation can provide a firmer basis for endogeneity in the normal rate. It argues that the assumption of variability in the normal shift system cannot be generalised across manufacturing industries, while the potential relevance for non-manufacturing industries is unknown. Another concern is that long-run trends in the average workweek of capital and aggregate demand do not coincide. The paper also finds that the long-run trend in the US Federal Reserve's index of capacity utilisation for the manufacturing sector is not flat as frequently claimed. Instead, there is a downward trend from the mid 1960s, which matches the slowdown in aggregate demand.

Keywords: Kaleckian; investment; capacity utilisation; normal rate of utilisation (search for similar items in EconPapers)
JEL-codes: B50 E12 E22 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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