Capacity utilization, and its role in inflation and inequality, has been at the center of the policy discussion in recent times. We study cyclical and distributional dynamics in an economy where capacity utilization choices are explicitly introduced and modeled. In the model, firms face...

Using quarterly micro data on capacity utilization among Swedish manufacturing firms, we show that idiosyncratic factors are much more important than aggregate influences in explaining variation in capacity utilization across firms and over time. Idiosyncratic does not mean unpredictable,...