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Is capacity utilization variable in the long run? An agent-based sectoral approach to modeling hysteresis in the normal rate of capacity utilization

Federico Bassi (), Tom Bauermann (), Dany Lang () and Mark Setterfield ()
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Tom Bauermann: Ruhr-University Bochum and Ruhr-Graduate School in Economics

No 2007, Working Papers from New School for Social Research, Department of Economics

Abstract: Post Keynesian macrodynamic models make various assumptions about the normal rate of capacity utilization. Those rooted in the Classical and neo-Keynesian traditions assume the normal rate is fixed, whereas Kaleckian models treat it as a variable that is endogenous to the actual rate of capacity utilization. This paper contributes to the debate about the normal rate of capacity utilization by developing a model of strong or genuine hysteresis, in which firms make discrete decisions about the normal rate depending on the degree of uncertainty about demand conditions. An agent-based model based on empirical analysis of 25 sectors of the US economy is used to show that hysteresis can cause variation in the normal rate of capacity utilization within a subset of the range of observed variation in the actual capacity utilization rate. This suggests that the economy exhibits both constancy and (endogenous) variability in the normal rate of utilization over different ranges of variation in the actual rate. More broadly speaking, the genuine hysteresis model is shown to provide the basis for a synthesis of Post Keynesian macrodynamics that draws on both the Classical/neo-Keynesian and Kaleckian modeling traditions.

Keywords: Normal rate of capacity utilization; Harrodian instability; genuine hysteresis; Kaleckian growth theory (search for similar items in EconPapers)
JEL-codes: C63 E11 E12 L6 L7 L9 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2020-06, Revised 2021-08
New Economics Papers: this item is included in nep-cmp, nep-hme, nep-mac, nep-ore and nep-pke
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http://www.economicpolicyresearch.org/econ/2020/NSSR_WP_072020.pdf First version, 2020 (application/pdf)

Related works:
Working Paper: Is capacity utilization variable in the long run? An agent-based sectoral approach tomodeling hysteresis in the normal rate of capacity utilization (2020) Downloads
Working Paper: Is capacity utilization variable in the long run? An agent-based sectoral approach tomodeling hysteresis in the normal rate of capacity utilization (2020) Downloads
Working Paper: Is capacity utilization variable in the long run? An agent-based sectoral approach to modeling hysteresis in the normal rate of capacity utilization (2020) Downloads
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