5.4 Capacity utilisation
Many commentators cited that the size of the output gap can be gauged by looking at surveyed measures of spare capacity from the Quarterly Survey of Business Opinion (QSBO). They argue that the size of the output gap is close to zero as the current rate of capacity utilisation (CUBO) was 89.8% in the 2012 September quarter, close to the 20-year average (90.2%). However, using the 20-year average or any other long-run average may not be appropriate as the average rate of utilisation has shifted over time, reflecting changes in sampling methodology or on-going changes in the structure of the economy. Figure 9 presents the estimated equilibrium capacity utilisation of the model as well as its confidence interval. This shows the estimated equilibrium at the end of the observation period is close to 91%, indicating some spare capacity.
In order to test whether the model's equilibrium capacity utilisation is better than the 20-year average in explaining the level of potential output, we compute the cross correlation coefficients between various output gaps and its capacity utilisation gaps. The results, as shown in Figure 10a and Figure 10b, indicate that all the output gaps are more strongly correlated with the estimated gap from the model than the gap derived from the 20-year average, irrespective to the sample period of estimation.
From this evidence, we can conclude that compared with the estimated capacity utilisation gap derived from the 20-year average, the estimated gap derived from the model is a more reliable measure of changes in the intensity of utilisation of capital as suggested by various output gaps.
- Figure 9 - The estimated equilibrium capacity utilisation with its 95% confidence interval
- Figure 10a - Cross-correlations between the estimated capacity utilisation gap from the model and various output gaps
- Figure 10b - Cross-correlations between the estimated capacity utilisation gap from the 20-year average and various output gaps
