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Journal of Economic Perspectives: Vol. 11 No. 1 (Winter 1997)

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Capacity Utilization

Article Citation

Corrado, Carol, and Joe Mattey. 1997. "Capacity Utilization." Journal of Economic Perspectives, 11(1): 151-167.

DOI: 10.1257/jep.11.1.151

Abstract

This article reviews how the Federal Reserve measures capacity utilization and explains why capacity utilization has been, and likely will remain, a useful indicator of inflationary pressures and business cycle fluctuations. The authors also explain why economic developments, such as the pace of technological change, increased international trade, and a shift in the share of the workforce to service-producing industries, have not substantially affected the indicator value of capacity utilization. A microtheoretic description of the concept of capacity utilization is offered. Evidence on the plausibility of microeconomic structural interpretations of the relation between capacity utilization and price changes is reviewed.

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Authors

Corrado, Carol (Federal Reserve System)
Mattey, Joe (Federal Reserve Bank of San Francisco)

JEL Classifications

E22: Capital; Investment; Capacity

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