On the ‘utilisation controversy’: a theoretical and empirical discussion of the Kaleckian model of growth and distribution

Nikiforos, Michalis

doi:10.1093/cje/beu076

Cited by 67 publications

(83 citation statements)

References 38 publications

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“…Without taking issue with the essential substance of this argument, one can nevertheless take issue with the strength of the conclusion that Nikiforos (2016) reaches: that data taken from the FRED provide no information about the normal rate of capacity utilization. This conclusion rests on the hypothesis that plant managers always and everywhere adhere to an interpretation of the US Census Bureau questionnaire (from which the FRB data is drawn) akin to that of Nikiforos (2016) himself. A weaker hypothesis is that such coincident interpretations occur some of the time, which results in the conclusion (still consistent with the essential thrust of Nikiforos's original argument) that the FRB data is likely prone to under-reporting variations in the normal rate of capacity utilization.…”

Section: Methodsmentioning

confidence: 99%

“…Nikiforos (2016 argues that this data does not, in fact, provide an appropriate measure of the capacity utilization rate -or at least a measure from which we can extract a trend value that can be suitably interpreted as the normal rate of capacity utilization. According to Nikiforos (2016), the FRB data does not measure capacity utilization relative to a physical maximum level of plant operation, but instead relative to a "normal" level of operation that can vary endogenously over time. This is due to the design of the survey questions on which basis the FRB capacity utilization data are collected.…”

Section: Methodsmentioning

confidence: 99%

“…This is due to the design of the survey questions on which basis the FRB capacity utilization data are collected. The upshot of all this, as Nikiforos (2016) demonstrates by way of a hypothetical example, is that reported capacity utilization can remain constant over time -giving rise to the appearance of a constant trend that can then be misinterpreted as a constant normal rate of capacity utilization -even as the normal rate of capacity utilization is, in fact, varying.…”

Section: Methodsmentioning

confidence: 99%

“…This singles it out as an adjustment mechanism of some consequence in the broader context of heterodox theories of growth and distribution. The idea of a hysteretic normal rate of capacity utilization has nevertheless been criticized, in particular by Skott (2012) and Nikiforos (2016). The Skott (2012) critique -as amplified by Nikiforos (2016) -can be divided into four parts.…”

Section: Critique Of the Hysteresis Mechanismmentioning

confidence: 99%

“…A variety of reasons are given for this (Hein et al, 2012), one of which involves postulating "hysteresis" in the normal rate, the latter understood as a historically-grounded rule of thumb that rises and falls with the actual rate of capacity utilization (Lavoie, 1995(Lavoie, , 1996(Lavoie, , 2010Dutt, 1997Dutt, , 2010Cassetti, 2006;Commendatore, 2006). Skott (2012) and Nikiforos (2016) argue that while analytically sound, the hysteresis mechanism lacks adequate behavioural foundations.…”

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confidence: 99%

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Hysteresis in the Normal Rate of Capacity Utilization: A Behavioural Explanation

Setterfield

Avritzer

2019

SSRN Journal

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Kaleckians describe a normal rate of capacity utilization that is subject to hysteresis effects. This means that the normal rate varies directly with the actual rate of capacity utilization, ensuring that steady-state equilibrium conditions in the Kaleckian model are fully adjusted (the actual and normal rates of capacity utilization are equalized) but without this last condition implying that the rate of capacity utilization is constant in the long run. The relationship between distribution and growth unique to the Kaleckian model is thus preserved. The hysteresis mechanism has been criticized from various quarters, however, these criticisms focusing on its alleged lack of behavioural foundations. This paper shows that consistent with the stylized facts, variation in the normal rate of capacity utilization in response to variation in the actual capacity utilization rate can be derived from the links between both variables and the volatility of the macroeconomic environment-volatility, in the presence of fundamental uncertainty, being an important reason why firms deliberately under-utilize capacity (even in the long run) in the first place. The result is an empirically-grounded behavioural foundation for hysteresis in the normal rate of capacity utilization.

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Section: Methodsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Section: Critique Of the Hysteresis Mechanismmentioning

confidence: 99%

mentioning

confidence: 99%

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Hysteresis in the Normal Rate of Capacity Utilization: A Behavioural Explanation

Setterfield

Avritzer

2019

SSRN Journal

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Multiplicity and not necessarily heterogeneity: implications for the long-run degree of capacity utilization

Domenico

2023

J Econ Interact Coord

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The paper discusses the implications of disaggregation within the post-Keynesian debate on the long-run convergence of the degree of capacity utilization toward the normal one. The debate is related to the emergence of Harrodian instability inside multiplier–accelerator models and has been characterized by two “opposite” positions: the supermultiplier (SM) and the neo-Kaleckian approaches. These approaches solve the instability issue differently, but both share the postulate that an equilibrium position is such only if the desired state of firms is realized. In the long run, the economy converges toward a fully adjusted position where the realized degree of capacity utilization is equal to the normal/desired one. In this paper, we develop an Agent Based—Stock Flow Consistent version of the SM model showing that once multiplier–accelerator mechanisms are explicitly reproduced in a multi-firm economy, the accumulation process can be stable without requiring any convergence between the actual and normal rate. Conversely, the modeled economy displays two emergent properties: the fluctuations of the business cycle arise endogenously, and the long-run aggregate degree of capacity utilization persistently fluctuates around a level lower than the normal one. To this extent, the quasi-steady state corresponds to a situation where the desired state of agents is not realized and single elements are not in equilibrium, but the aggregate is. Finally, we compare outcomes produced from the model according to different scenarios on firms' heterogeneity and network symmetries.

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Harrodian instability in decentralized economies: an agent-based approach

Russo

2020

Econ Polit

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This paper presents a small-scale agent-based extension of the so-called neo-Kaleckian model. The aim is to investigate the emergence of Harrodian instability in decentralized market economies. We introduce a parsimonious microfoundation of investment decisions. Agents have heterogeneous expectations about demand growth and set idiosyncratically their investment expenditures. Interactions occur through demand externalities. We simulate the model under different scenarios. First, when heterogeneity is ruled out, Harrodian instability is showed to emerge as for the aggregate model. Instead, when heterogeneity is accounted for, a stable dynamics with endogenous fluctuations arises. At the same time, in this second scenario, all the Keynesian implications are preserved, including the presence of macroeconomic paradoxes. Sensitivity analysis confirms the general robustness of our results and the logical consistency of the model.

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On the ‘utilisation controversy’: a theoretical and empirical discussion of the Kaleckian model of growth and distribution

Cited by 67 publications

References 38 publications

Hysteresis in the Normal Rate of Capacity Utilization: A Behavioural Explanation

Hysteresis in the Normal Rate of Capacity Utilization: A Behavioural Explanation

Multiplicity and not necessarily heterogeneity: implications for the long-run degree of capacity utilization

Harrodian instability in decentralized economies: an agent-based approach

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