Idiosyncratic uncertainty, capacity utilization and the business cycle

Jean-Francois Fagnart, Omar Licandro () and Franck Portier ()

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

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 facedby each firm explains why sorne productive capacities may remain idle in the sequel and why individual capacity utilization rates differ across firms. The capacity underutilization at the aggregate level thus hides a diversity of microeconomic situations. The variability of the capacity utilization allows for a good description of sorne of the main stylized facts of the business cycle, propagates and magnifies aggregate technological shocks and generates endogenous persistence (Le., the output growth rate displays positive serial correlation).

Keywords: Business; Cycle; Capacity; Utilization; Idiosyncratic; shocks; Mark-ups; Propagation; Mecanism (search for similar items in EconPapers)
Date: 1996-04
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Related works:
Working Paper: Idiosyncratic uncertainty, capacity utilization and the business cycle (1996)
Working Paper: Idiosyncratic Uncertainty, Capacity Utilization and the Business Cycle (1996)
Working Paper: Idiosyncratic uncertainty, capacity utilization and the business cycle
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:3897

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