Capital Utilization and Returns to Scale

   (620 K)

This paper studies the implications of procyclical capital utilization rates for inference regarding cyclical movements in labor productivity and the degree of returns to scale. We organize our investigation around five questions that we study using a measure of capital services based on electricity consumption: (1) Is the phenomenon of near or actual short run increasing returns to labor (SRIRL) an artifact of the failure to accurately measure capital utilization rates? (2) Can we find a significant role for capital services in aggregate and industry level production technologies? (3) Is there evidence against the hypothesis of constant returns to scale? (4) Can we reject the notion that the residuals in our estimated production functions represent technology shocks? (5) How does correcting for cyclical variations in capital services affect the statistical properties of estimated aggregate technology shocks? The answer to the first two questions is: yes. The answer to the third and fourth questions is: no. The answer to the fifth question is: a lot.

Published:

• Bernanke, Ben S. and Julio Rotemberg (eds.) NBER Macroeconomics Annual 1995. Cambridge: MIT Press, 1995. ,
• Capital Utilization and Returns to Scale, Craig Burnside, Martin Eichenbaum, Sergio Rebelo, in NBER Macroeconomics Annual 1995, Volume 10 (1995), MIT Press
  

This paper is available as PDF (620 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX