Towards an explanation of a declining trend in capacity utilisation in the US economy

By Santiago J. Gahn

PKES Working Paper 2214

May 2022

In this paper I analyse a declining trend of effective capacity utilisation in the United States. After identifying determinants of normal capacity utilisation in the literature, I find that this declining trend of the FRB’s capacity utilisation is also present in the output-capital ratio of the NBER-CES sectoral database since 1958. Results suggest that permanent changes on technical change (K/L), distribution (W/Y ) and output have transitory effects on the output-capital ratio, my proxy of effective capacity utilisation.

Keywords: capacity utilisation, technical change, income distribution, Panel Structural VAR

JEL classification: B50 E11 E22 O41 O47