The NIRCU and the Phillips curve: an approach based on micro data

Abstract

In this paper we propose a straightforward method to derive a non-inflationary rate of capacity utilization (NIRCU) based on micro data. We condition the current capacity utilization of firms on their current and planned price adjustments. The noninflationary capacity utilization rate is then defined as the rate where a firm feels no price adjustment pressure. One of the main advantages is that this methodology uses structural aspects and does not make it necessary to operate with -often rather arbitrary -statistical filters. We show that our aggregate NIRCU performs remarkably well as an indicator of inflationary pressure in a Phillips curve estimation. JEL classification: E31, E32, E52Le NIRCU et la courbe de Phillips : une approche ancrée dans les micro-données. Dans ce mémoire, on propose une méthode simple pour dériver le taux non-inflationniste d'utilisation de la capacité (NIRCU)à partir de micro-données. Onétablit l'utilization de la capacité des firmes sur la base des ajustements (présents ou anticipés) de prix. Le taux non-inflationniste d'utilisation de la capacité est alors défini comme celui où la firme ne ressent aucune pression pour ajuster ses prix. L'un des principaux avantages de cette approche est que cette méthodologie utilise les aspects structurels et ne nécessite pas qu'on utilise des filtres statistiques souvent arbitraires. On montre que le NIRCU agrégé performe relativement bien en tant qu'indicateur de la pression inflationniste dans la calibration de la courbe de Phillips.

The Inflation Expectations of Firms: What Do They Look Like, are They Accurate, and Do They Matter?

“…Since the …rm-level in ‡ation measure from the BIE survey is not a continuous variable, we cannot proceed directly to estimating via OLS. 27 Given the ordinal nature of the dependent variable-with the response ordering going from 'down' to 'up very signi…cantly'-we proceed by estimating an ordinal logistic regression (also called a proportional odds model) of perceived in ‡ation on …rm-level in ‡ation expectations, the sales gap, and the margins gap. 28 As previously mentioned the sales and margin gap measures are categorical variables, where …rms report current sales and margins relative to normal times.…”

Measuring the output gap in Switzerland with linear opinion pools

“…The implicit assumption here is that there is an average level of capacity utilization over the length of the series, which corresponds to a zero output gap. This is a common assumption in the literature, however, it only holds under the condition that there are no time-varying structural changes in the manufacturing sector (Köberl and Lein, 2011). Note that the transformation (standardisation) of the y t CAP series above is of no consequence for the estimation of the VAR models.…”

A new measure of the non-inflationary rate of capacity utilisation for the brazilian economy

“…In this paper we will use only the information on price expectations concerning the firm's main product; Figure 1 displays the distribution of firms' replies regarding their main product in 2013. In the empirical literature (see Köberl & Lein (2011), Fessler et al (2014), the NIRCU is usually derived also considering the information about whether capital utilisation is above or below the "norm". Indeed, according to Caballero et al (1995), technical capacities questions may provide interesting information about the current investment gap faced by the firm: if the investment gap is positive (negative), firms may be running at high (low) capacity, even without expecting to change their prices.…”

“…In fact, any deviation with respect to the actual unemployment rate may be interpreted as evidence of existing inflationary (or deflationary) pressures. However, according to Staiger et al (1997), unemployment is not the only variable that can be used to predict inflation in the short run; in particular, in a recent contribution Köberl & Lein (2011) suggest the use of the rate of capacity utilisation in order to derive an alternative measure of inflationary pressures. In particular, Köberl & Lein (2011), in full analogy with the NIRU, introduce the definition of a non-inflationary rate of capacity utilisation (NIRCU); the NIRCU can be used in a Phillips curve framework in order to obtain early signals of inflationary pressures.…”

“…However, according to Staiger et al (1997), unemployment is not the only variable that can be used to predict inflation in the short run; in particular, in a recent contribution Köberl & Lein (2011) suggest the use of the rate of capacity utilisation in order to derive an alternative measure of inflationary pressures. In particular, Köberl & Lein (2011), in full analogy with the NIRU, introduce the definition of a non-inflationary rate of capacity utilisation (NIRCU); the NIRCU can be used in a Phillips curve framework in order to obtain early signals of inflationary pressures. The main innovation of the Köberl-Lein paper is that their measure of the NIRCU is not derived from appropriately filtering current capacity utilisation, but rather from micro-level information based on survey data.…”