Further Evidence on the Dynamic Link between Capacity Utilization and Inflation

We reexamine the dynamic link between capacity utilization and inflation, allowing for the relationship to be asymmetric. We conduct a time series analysis of aggregate monthly U.S. data over an extended period of time (January 1967 to November 2008) as well as over several subsample periods corresponding to known changes in supply chain eras. The results indicate that significant asymmetry exists over different sample periods, but the specific relationship between inflation and capacity utilization has dwindled in the more recent information engineering era. In particular, the results are consistent with more efficient supply chains.