Technology, Capital Spending, and Capacity Utilization

San Diego State University, Center for Public Economics Discussion Paper No. 03-06

27 Pages Posted: 29 Jul 2003

See all articles by Cynthia Bansak

Cynthia Bansak

Saint Lawrence University - Department of Economics

Martha Starr

Independent; Greylock McKinnon Associates

Norman J. Morin

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: March 2003

Abstract

Capacity utilization has been a valuable indicator of inflationary pressure. Yet recent technological changes have made relationships between inputs and outputs more flexible, possibly eroding the predictive value of the utilization rate. This paper shows that, conceptually, technological change could either lower average utilization by making it cheaper to hold excess capacity, or raise utilization by making further changes in capacity less costly. Using data on 111 manufacturing industries from 1974 to 2000, we find that, for the average industry, technological change has had a modest but appreciable effect, shaving 0.2 to 2.3 percentage points off the utilization rate.

Keywords: technology, capital spending, capacity utilization

JEL Classification: D24, E22, E31

Suggested Citation

Bansak, Cynthia and Starr, Martha and Starr, Martha and Morin, Norman J., Technology, Capital Spending, and Capacity Utilization (March 2003). San Diego State University, Center for Public Economics Discussion Paper No. 03-06, Available at SSRN: https://ssrn.com/abstract=418940 or http://dx.doi.org/10.2139/ssrn.418940

Cynthia Bansak

Saint Lawrence University - Department of Economics ( email )

One Romoda Drive
Canton, NY 13617
United States

Martha Starr (Contact Author)

Greylock McKinnon Associates ( email )

1 Memorial Drive, Suite 1410
Cambridge, MA 02142
United States
12025773640 (Phone)

Independent

Norman J. Morin

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2476 (Phone)
202-736-1937 (Fax)

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