The NIRCU and the Phillips curve: an approach based on micro data

The NIRCU and the Phillips curve: an approach based on micro data

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Article ID: iaor201111967
Volume: 44
Issue: 2
Start Page Number: 673
End Page Number: 694
Publication Date: May 2011
Journal: Canadian Journal of Economics/Revue canadienne d'conomique
Authors: ,
Keywords: capacity planning, inflation, pricing
Abstract:

In this paper we propose a straightforward method to derive a non‐inflationary rate of capacity utilization (NIRCU) based on micro data. We condition the current capacity utilization of firms on their current and planned price adjustments. The non‐inflationary capacity utilization rate is then defined as the rate where a firm feels no price adjustment pressure. One of the main advantages is that this methodology uses structural aspects and does not make it necessary to operate with – often rather arbitrary – statistical filters. We show that our aggregate NIRCU performs remarkably well as an indicator of inflationary pressure in a Phillips curve estimation.

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