Sustek, Roman (2009): Nonconvex Margins of Output Adjustment and Aggregate Fluctuations.
Download (288kB) | Preview
In most manufacturing industries output is adjusted in a lumpy way along three margins: shiftwork, weekend work, and closing a plant temporarily down. We incorporate such decisions into a dynamic general equilibrium model and study: (i) if such micro-level nonconvexities magnify business cycles; and (ii) if the aggregate effects of changes in firms' borrowing costs due to monetary policy shocks vary over the cycle. Calibrated to industrial observations, the model implies that aggregate output is in fact 25% less volatile than in an economy without such features, and monetary policy shocks have similar effects on output in recessions as in expansions.
|Item Type:||MPRA Paper|
|Original Title:||Nonconvex Margins of Output Adjustment and Aggregate Fluctuations|
|Keywords:||Nonconvexities, business cycles, capacity utilization, monetary policy, asymmetries|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E23 - Production
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
|Depositing User:||Roman Sustek|
|Date Deposited:||24. Sep 2009 01:18|
|Last Modified:||13. Feb 2013 09:14|
Bagby, R. J., Calculating Normal Probabilities," American Mathematical Monthly 102 (1995), 46-49.
Barth, M. J. and V. A. Ramey, The Cost Channel of Monetary Transmission," NBER Macroeconomics Annual 16 (2002), 199-256.
Beaulieu, J. and J. Mattey, The Workweek of Capital and Capacity Utilization in Manufacturing," Journal of Productivity Analysis 10 (1998), 199-223.
Bresnahan, T. F. and V. A. Ramey, Output Fluctuations at the Plant Level," Quar- terly Journal of Economics 109 (1994), 593-624.
Burnside, C. and M. Eichenbaum, Factor-Hoarding and the Propagation of Business- Cycle Shocks," American Economic Review 86 (1996), 1154-74.
Christiano, L. J. and M. Eichenbaum, Liquidity E®ects and the Monetary Transmis- sion Mechanism," American Economic Review 82 (1992), 346-53.
Christiano, L. J., M. Eichenbaum and C. L. Evans, Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy 113 (2005), 1-45.
Clark, P. K., Macroeconomic Implications of Variation in the Workweek of Capital. Comments and Discussion," Brookings Papers on Economic Activity 2 (1996), 120-33.
Cooley, T. F., G. D. Hansen and E. C. Prescott, Equilibrium Business Cycles with Idle Resources and Variable Capacity Utilization," Economic Theory 6 (1995), 35-49.
Corrado, C. and J. Mattey, Capacity Utilization," Journal of Economic Perspectives 11 (1997), 151-67.
Garcia, R. and H. Schaller, Are the Effects of Monetary Policy Asymmetric?," Eco- nomic Inquiry 40 (2002), 102-19.
Hall, G., Nonconvex Costs and Capital Utilization: A Study of Production and Inven- tories at Automobile Assemmbly Plants," Journal of Monetary Economics 45 (2000), 681-716.
Hansen, G. D., Indivisible Labour and the Business Cycle," Journal of Monetary Eco- nomics 16 (1985), 309-27.
Hansen, G. D. and E. C. Prescott, Capacity Constraints, Asymmetries, and the Business Cycle," Review of Economic Dynamics 8 (2005), 850-65.
Hansen, G. D. and T. J. Sargent, Straight Time and Overtime in Equilibrium," Journal of Monetary Economics 21 (1988), 281-308.
Hornstein, A., Towards a Theory of Capacity Utilization: Shiftwork and the Workweek of Capital," Federal Reserve Bank of Richmond Economic Quarterly (2002), 65-86.
Judd, K. L., Projection Methods for Solving Aggregate Growth Models," Journal of Economic Theory 58 (1992), 410-52.
--- Numerical Methods in Economics (MIT Press, 1998).
Khan, A. and J. K. Thomas, Nonconvex Factor Adjustments in Equilibrium Business Cycle Models: Do Nonlinearities Matter?," Journal of Monetary Economics 50 (2003), 331-60.
---, Idiosyncratic Shocks and the Role of Nonconvexities in Plant and Aggregate In- vestment Dynamics," Econometrica 76 (2008), 395-436.
King, S. L. and H. B. Williams, Shift Work Pay Di®erentials and Practices in Manu- facturing," Monthly Labor Review (1985), 26-33.
Kostiuk, P. F., Compensating Differentials for ShiftWork," Journal of Political Economy (1990), 1054-75.
Kydland, F. E. and E. C. Prescott, The Workweek of Capital and Its Cyclical Implications," Journal of Monetary Economics 21 (1988), 343-60.
Lo, M. C. and J. Piger, Is the Response of Output to Monetary Policy Asymmetric? Evidence from a Regime-Switching Coe±cients Model," Journal of Money, Credit, and Banking 37 (2005), 865-86.
Lucas, R. E. J., Capacity, Overtime, and Empirical Production Functions," American Economic Review 60, Papers and Proceedings (1970), 23-27.
Mattey, J. and S. Strongin, Factor Utilization and Margins for Adjusting Output: Evidence from Manufacturing Plants," Federal Reserve Bank of San Francisco Economic Review 2 (1997), 3-17.
Mayshar, J. and G. Solon, Shift Work and the Business Cycle," American Economic Review 83 (1993), 224-28.
Peersman, G. and F. Smets, Are the E®ects of Monetary Policy in the Euro Area Greater in Recessions then in Booms?," Working Paper 52, European Central Bank, 2002.
Prescott, E. C., Nonconvexities in Quantitative General Equilibrium Studies of Business Cycles," in T. J. Kehoe, T. N. Srinivasan and J. Whalley, eds., Frontiers in Applied General Equilibrium Modeling (Cambridge University Press, 2005).
Shapiro, M. D., Capital Utilization and Capital Accumulation: Theory and Evidence," Journal of Applied Econometrics 1 (1986), 211-34.
---, Capital Utilization and the Marginal Premium for Work at Night," Mimeo, 1995.
---, Macroeconomic Implications of Variation in the Workweek of Capital," Brookings Papers on Economic Activity 2 (1996), 79-119.
Taylor, J. B. and H. Uhlig, Solving Nonlinear Stochastic Growth Models: A Com- parison of Alternative Solution Methods," Journal of Business and Economic Statistics 8 (1990), 1-17.
Thomas, J. K., Is Lumpy Investment Relevant for the Business Cycle?," Journal of Political Economy 110 (2002), 508-34.
Weise, C. L., The Asymmetric E®ects of Monetary Policy: A Nonlinear Vector Autore- gression Approach," Journal of Money, Credit and Banking 31 (1999), 85-108.