search query: @indexterm capacity utilization / total: 90
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| Author: | Wen, Y. |
| Title: | Capacity utilization under increasing returns to scale |
| Journal: | Journal of Economic Theory
1998 : JUL, VOL. 81:1, p. 7-36 |
| Index terms: | CAPACITY UTILIZATION BUSINESS CYCLES MODELS USA |
| Language: | eng |
| Abstract: | The paper overcomes an important objection against the empirical relevance of the Benhabib-Farmer model as a potential account of actual business cycle fluctuations. This is attributable to an elasticity effect and a returns-to-scale effect of capacity utilization. These effects are related closely to empirical puzzles that capital appears to play an insignificant role in explaining cyclical movements in output and that the estimated labour elasticity appears to be larger than labour's share. Due to these effects, multiple equilibria and persistent fluctuations can easily occur in a growth model for externalities mild enough so that the aggregate-labor-demand curve is downward sloping. Analyses show that the propagation mechanism generated by capacity utilization under mild increasing returns is capable of explaining the periodic patterns of U.S. business cycles documented by Watson. |
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