Chronic Excess Capacity and Unemployment Hysteresis in EU Countries. A Structural Approach

Federico Bassi

No def091, DISCE - Working Papers del Dipartimento di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: We develop a structural method for identifying the unobservable rate of capacity utilization in 14 EU countries, by simultaneously estimating the coefficients of a production function, an investment function, a labor productivity function and an unemployment function. Our results provide evidence of chronic underutilization of productive capacity and hysteresis in unemployment, especially after the 2008’ financial crisis. We show that our series of the rate of capacity utilization are significant predictors of capacity accumulation, productivity growth and unemployment rates. Moreover, they predict inflation as efficiently as the DG ECFIN series of capacity utilization and output gaps.

Keywords: Capacity utilization; Potential GDP; Output gap; Hysteresis. (search for similar items in EconPapers)
JEL-codes: C51 E22 E32 (search for similar items in EconPapers)
Pages: 47
Date: 2020-10
New Economics Papers: this item is included in nep-eec and nep-mac
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