Effective Demand, Exogenous Normal Utilization and Endogenous Capacity

Christian Schoder

Oct 8

Written By SCEPA

WORKING PAPER

(192 KB)

Using Cointegrated Vector Auto-Regression analysis, this paper provides evidence that production capacities adjust endogenously to current output in the long run.

The principle of effective demand in a growth context, by which a permanent demand shock has a permanent growth effect, is consistent with the stylized fact of a stationary rate of capacity utilization since production capacities are endogenous in the long run.

working paper

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SCEPA is part of the Economics Department at The New School for Social Research