On the adjustment of capacity utilisation to aggregate demand: Revisiting an old Sraffian critique to the Neo-Kaleckian model

Abstract

For many years, there was an unanswered theoretical question among Post-Keynesian scholars: What’s the behaviour through time of capacity utilisation after an aggregate demand shock? Under a (baseline and extended) Neo-Kaleckian framework, there should be a persistent effect on capacity utilisation to a shock like this one. On the other hand, Classical-Keynesian scholars are inclined to emphasise a continuous tendency towards normal utilisation. I tried to shed some light on this issue by adopting a Panel Structural VAR, time series SVAR and Local Projections. My findings, based on national quarterly data for 34 countries, suggest that the nature of the effects on effective capacity utilisation of shocks to the level of economic activity is merely transitory.