How Large are Returns to Scale in the U.S.? A View Across the Boundary

25 Pages Posted: 18 Feb 2017

See all articles by Thomas A. Lubik

Thomas A. Lubik

Johns Hopkins University - Department of Economics

Date Written: 2016

Abstract

I study the degree of returns to scale in aggregate U.S. data by estimating the standard RBC model with and without variable capacity utilization using Bayesian methods. The source of increasing returns is the presence of an externality in production. I find that, at best, returns are mildly increasing at a level statistically indistinguishable from the constant-returns case. A high enough degree of increasing returns is needed to support equilibrium indeterminacy and sunspot-driven business cycle fluctuations. In my estimation results, I find that I can conclusively rule out this possibility on account of a low estimated degree of increasing returns and a fairly inelastic labor supply.

Keywords: RBC model, business cycles

Suggested Citation

Lubik, Thomas A., How Large are Returns to Scale in the U.S.? A View Across the Boundary (2016). Economic Quarterly, Issue 1Q, pp. 79-103, 2016. Available at SSRN: https://ssrn.com/abstract=2919787 or http://dx.doi.org/10.21144/eq1020103

Thomas A. Lubik (Contact Author)

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States

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