AN ANALYSIS OF TIME-SERIES ESTIMATES OF CAPACITY UTILIZATION

The Federal Reserve's capacity utilization series constitute an import ant indicator of resource utilization. Because capacity is difficult t o measure, this paper considers time-series alternatives. All that is needed to estimate the permanent component is an IP index. The time-se ries measures have the advantage of being consistently measured over t ime and easily reproducible. The FRB series are evaluated relative to the alternatives in terms of their ability to explain and predict infl ation. The alternatives generally perform as well or better than the F RB series in these tests.