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

Abstract

The aim of the paper is to derive a non-inflationary rate of capacity utilisation (NIRCU) for the Brazilian economy using firm level data stemming from the IBRE/FGV survey on the manufacturing sector. In doing so, we condition the current capacity utilisation rate at the firm level on expected price changes; moreover, we also condition on the information regarding the number of shifts worked, also provided at the firm level, considered as a possible proxy of the investment gap. The NIRCU is found to perform well as an indicator of inflationary pressures in a standard Phillips-curve framework; results shows that even during the crisis the Brazilian NIRCU lies below the current level of capacity, signalling the persistence of Brazilian inflationary tensions