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Factor-Hoarding and the Propagation of Business-Cycle Shocks

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  • Burnside, Craig
  • Eichenbaum, Martin

Abstract

This paper analyzes the role of variable capital-utilization rates in propagating shocks over the business cycle. The model on which the authors' analysis is based treats variable capital-utilization rates as a form of factor-hoarding. They argue that variable capital-utilization rates are a quantitatively important source of propagation to business-cycle shocks. With this additional source of propagation, the volatility of exogenous technology shocks needed to explain the observed variability in aggregate U.S. output is significantly reduced relative to standard real-business-cycle models. Copyright 1996 by American Economic Association.

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  • Burnside, Craig & Eichenbaum, Martin, 1996. "Factor-Hoarding and the Propagation of Business-Cycle Shocks," American Economic Review, American Economic Association, vol. 86(5), pages 1154-1174, December.
    • Handle: RePEc:aea:aecrev:v:86:y:1996:i:5:p:1154-74
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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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