Download This PaperTechnology, Capital Spending, and Capacity Utilization
15 Pages Posted: 26 Jun 2007
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Technology, Capital Spending, and Capacity Utilization
Abstract
Capacity utilization is a closely watched macroeconomic indicator because rising utilization may signal rising inflationary pressures. However, recent technological changes have increased the flexibility of relationships between inputs and outputs, potentially eroding the predictive value of the utilization rate. This paper examines relationships between technology, capital spending, and capacity utilization. After establishing conceptually that the effect of recent technological changes on capacity utilization is ambiguous, we investigate the effect empirically using panel data on 111 manufacturing industries. Our results suggest that, for the average industry, the technological change of the 1974-2000 period lowered capacity utilization by 0.2-2.3 percentage points.
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Norman J. Morin
Board of Governors of the Federal Reserve System ( email )
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