Firm Heterogeneity, Capacity Utilization and the Business Cycle
AbstractIn a stochastic dynamic general equilibrium framework, we introduce the concept of capacity utilization (as opposed to capital utilization). We consider an economy where monopolistic firms use a putty-clay technology and decide on their productive capacity and technology under under uncertainty. An idiosyncratic uncertainty about the exact position of the demand curve faced by each firm explains why some productive capacities remain idle and why individual capacity utilization rates differ across firms. A variable capacity utilization allows for a good description of some of the main stylized facts of the business cycle, propagates and magnifies aggregate technological shocks and generates endogenous persistence (i.e., the output growth rate displays positive serial correlation). (Copyright: Elsevier)
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Bibliographic InfoArticle provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 2 (1999)
Issue (Month): 2 (April)
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Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101
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Find related papers by JEL classification:
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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