Firm Heterogeneity, Capacity Utilization and the Business Cycle

Jean-François Fagnart, Omar Licandro () and Franck Portier ()
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Jean-François Fagnart: Universté de Cergy-Pontoise

Review of Economic Dynamics, 1999, vol. 2, issue 2, 433-455

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

JEL-codes: E22 E32 (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (31)

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DOI: 10.1006/redy.1998.0057

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