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The changing dynamics of short-run output adjustment

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  • Korkut Alp Erturk
  • Ivan Mendieta-Munoz

Abstract

Much of macroeconomic theorizing rests on assumptions that define the short-run output adjustment of a mass-production economy. The demand effect of investment on output, assumed much faster than its supply effect, works through employment expanding pari passu with changes in capacity utilization while productivity remains constant. Using linear Structural VAR and Time-Varying Parameter Structural VAR models, we document important changes in the short-run output adjustment in the USA. The link between changes in employment, capacity utilization and investment has weakened, while productivity became more responsive following demand shifts caused by investment since the early 1990s.

Suggested Citation

  • Korkut Alp Erturk & Ivan Mendieta-Munoz, 2018. "The changing dynamics of short-run output adjustment," Working Paper Series, Department of Economics, University of Utah 2018_04, University of Utah, Department of Economics.
    • Handle: RePEc:uta:papers:2018_04
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    More about this item

    Keywords

    Changes in short-run output adjustment; capacity utilization; employment; mass-production economy; post-Fordism. JEL Classification: B50; E10; E32;
    All these keywords.

    JEL classification:

    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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