Convex Supply Curves

86 Pages Posted: 26 Aug 2020

See all articles by Christoph Boehm

Christoph Boehm

University of Texas at Austin

Nitya Pandalai-Nayar

University of Texas at Austin - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August, 2020

Abstract

We provide evidence that industries' supply curves are convex. To guide our empirical analysis, we develop a model, in which capacity constraints at the plant level generate convex supply curves at the industry level. The industry's capacity utilization rate is a sufficient statistic for the supply elasticity. Using data on capacity utilization and three different instruments, we estimate the supply curve and find robust evidence for an economically sizable degree of convexity. The nonlinearity we identify has several macroeconomic implications: Responses to shocks are state-dependent, the Phillips curve is convex, and higher welfare costs of business cycles than Lucas (1987).

Keywords: fiscal policy, monetary policy, slack, state-dependence, utilization

JEL Classification: E22, E32, E52, E62, F44

Suggested Citation

Boehm, Christoph and Pandalai-Nayar, Nitya, Convex Supply Curves (August, 2020). ECB Working Paper No. 20202460, Available at SSRN: https://ssrn.com/abstract=3681327

Christoph Boehm (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Nitya Pandalai-Nayar

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

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