Nowcasting capacity utilization in Turkey: A continuous wavelet analysis

Abstract

Capacity utilization in macroeconomics is always related to inflation rate and unemployment level. However, the Great Recession has taught us that there might have been other factors considered in determining and/or be determined by capacity utilization. In order to further enhance Phillips Curve relationship unconventional variables such as financial and survey variables are considered. The relationship between capacity utilization rates and several real variables such as industrial production, gross domestic product growth rate, unemployment rate, consumer expenditures, financial variables such as return on BIST 100 index, exchange rate of currency basket, interest rates, survey variables such as consumer consumption index, business tendency survey and survey of expectations is investigated using data between 2006 and 2015 for Turkey. All of the above-mentioned variables indicate the production capacity and their repercussions on other macro variables except the level of standard of living. We also highlight the repercussions of production capacity concerning welfare state.