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Most empirical studies provide evidence that the rate of capacity utilization is stable around a constant Non-accelerating inflation rate of capacity utilization (NAIRCU). Nevertheless , available statistical series of the rate of capacity utilization, which is unobservable, are constructed by assuming that it is stable over time. Hence, the stability of the NAIRCU is an artificial artefact. In this paper, we develop a method to estimate the rate of capacity utilization without imposing stability constraints. Partially inspired to the Production function methodology (PFM), we estimate the parameters of a production function by imposing aggregate correlations between the rate of capacity utilization and a set of macroeconomic variables, namely investment , labor productivity and unemployment. Our results show that the NAIRCU is not a constant rate but a non-stationary time-varying trend, and that chronicle under-utilization of capacity with stable inflation is a plausible equilibrium. Hence, persistent deviations of GDP might reflect persistent shocks to capacity utilization rather than exogenous shocks to total factor productivity. As a corollary, expansionary demand policies do not necessarily create permanent inflationary pressures if the NAIRCU is below full-capacity output, namely in post-crisis periods. Abstract Most empirical studies provide evidence that the rate of capacity utilization is stable around a constant Non-accelerating inflation rate of capacity utilization (NAIRCU). Nevertheless, available statistical series of the rate of capacity utilization, which is unobservable, are constructed by assuming that it is stable over time. Hence, the stability of the NAIRCU is an artificial artefact. In this paper, we develop a method to estimate the rate of capacity utilization without imposing stability constraints. Partially inspired to the Production function methodology (PFM), we estimate the parameters of a production function by imposing aggregate correlations between the rate of capacity utilization ...

Most empirical studies provide evidence that the rate of capacity utilization is stable around a constant Non-accelerating inflation rate of capacity utilization (NAIRCU). Nevertheless , available statistical series of the rate of capacity utilization, which is unobservable, are constructed by assuming that it is stable over time. Hence, the stability of the NAIRCU is an artificial artefact. In this paper, we develop a method to estimate the rate of capacity utilization without imposing stability constraints. Partially inspired to the Production function methodology (PFM), we estimate the parameters of a production function by imposing aggregate correlations between the rate of capacity utilization and a set of macroeconomic variables, namely investment , labor productivity and unemployment. Our results show that the NAIRCU is not a constant rate but a non-stationary time-varying trend, and that chronicle under-utilization of capacity with stable inflation is a plausible equilibrium. Hence, persistent deviations of GDP might reflect persistent shocks to capacity utilization rather than exogenous shocks to total factor productivity. As a corollary, expansionary demand policies do not necessarily create permanent inflationary pressures if the NAIRCU is below full-capacity output, namely in post-crisis periods. Abstract Most empirical studies provide evidence that the rate of capacity utilization is stable around a constant Non-accelerating inflation rate of capacity utilization (NAIRCU). Nevertheless, available statistical series of the rate of capacity utilization, which is unobservable, are constructed by assuming that it is stable over time. Hence, the stability of the NAIRCU is an artificial artefact. In this paper, we develop a method to estimate the rate of capacity utilization without imposing stability constraints. Partially inspired to the Production function methodology (PFM), we estimate the parameters of a production function by imposing aggregate correlations between the rate of capacity utilization and a set of macroeconomic variables, namely investment, labor productivity and unemployment. Our results show that the NAIRCU is not a constant rate but a non-stationary time-varying trend, and that chronicle under-utilization of capacity with stable inflation is a plausible equilibrium. Hence, persistent deviations of GDP might reflect persistent shocks to capacity utilization rather than exogenous shocks to total factor productivity. As a corollary, expansionary demand policies do not necessarily create permanent inflationary pressures if the NAIRCU is below full-capacity output, namely in post-crisis periods.

It is a well-known fact that capital is scarce in most of the
developing countries and thus some of the production factors, such as
labour, remain unemployed, leading to a lower growth rate of G.N.P. than
would be possible under full employment. Additions to the stock of
capital not only increase the rate of growth but also provide new job
opportunities. However, in many developing countries, capital is
utilised less than one-third of the time [10,p.38], The underutilization
of capital obviously shrinks the growth rate of less deve¬loped
countries still further. Capacity underutilization discourages
technological progress which leads to an inefficient industrial
structure. This presents us with a paradox: if capital is scarce in
developing countries, why is it underutilized? A number of hypotheses
have been advanced to explain this paradox. Some of these hypotheses
relate to oligopolistic structure of the market, deficient demand,
non-availability of complementary factors of production (such as skilled
labour), imported inputs and government licensing policies. Moreover,
when aid is available for specific projects, there is a tendency to
build up addi¬tional capacity because the recipient countries prefer
some aid to no-aid. However, very little has been done so far in
building a theoretical framework which could be used in empirical
analysis to throw light on the possible causes of capacity
underutilization. Marris's theoretical framework [4] and Winston's
empirical investigation of capacity utilization in Pakistan [10] are
exceptions.

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One strategic design parameter in capacity management is the
setting of a planned level of capacity utilization at which the
manufacturing operation will operate long term. Seeks to examine
systematically the implications of varying levels of capacity
utilization within an assemble‐to‐order firm through experiments with a
simulation model. Four performance measures and a total weekly cost
measure are analysed under nine capacity utilization levels, two demand
patterns, and 11 ratios of the costs of idle capacity to the costs of
late orders. The prescribed capacity utilization level is a function of
the firm′s competitive goals, demand pattern, and cost structures.