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Persistence without too much price stickiness: the role of variable factor utilization

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Author Info

  • Katharine S. Neiss

    (Bank of England)

  • Evi Pappa

    (London School of Economics)

Abstract

We study the propagation of monetary shocks in a sticky price model with capital utilization and labor effort. Variable factor utilization enriches the propagation mechanism of monetary shocks by reducing the sensitivity of marginal costs to changes in aggregate output. Variable labor effort is relatively more important for generating persistence than variable capital utilization, except when depreciation is fairly unresponsive to changes in utilization. In addition to reinforcing the propagation mechanism of monetary shocks, volatilities and comovements of output, capacity utilization and hours produced by the model are close to those observed in the UK. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2004.10.008
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 8 (2005)
Issue (Month): 1 (January)
Pages: 231-255

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Handle: RePEc:red:issued:v:8:y:2005:i:1:p:231-255

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Related research

Keywords: real and nominal rigidities; effort; capital utilization; persistence.;

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References

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Citations

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Cited by:
  1. Martial Dupaigne, 2007. "Les variations choisies de l'utilisation du capital : une revue des implications macroéconomiques," Revue d'économie politique, Dalloz, vol. 0(2), pages 161-196.
  2. Givens Gregory E, 2008. "Unemployment, Imperfect Risk Sharing, and the Monetary Business Cycle," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-43, March.
  3. Alok Johri, 2007. "Delivering Endogenous Inertia in Prices and Output," Department of Economics Working Papers 2007-04, McMaster University.
  4. Mark Weder, 2008. "Hours and effort variation in sunspot-based business cycle theory," Economics Bulletin, AccessEcon, vol. 5(12), pages 1-12.
  5. Alice Albonico & Sarantis Kalyvitis & Evi Pappa, . "Capital Maintenance and Depreciation over the Business Cycle," DEOS Working Papers 1326, Athens University of Economics and Business.
  6. Javier Andrés & Pablo Burriel & Ángel Estrada, 2006. "BEMOD: a DSGE model for the Spanish economy and the rest of the Euro area," Banco de Espa�a Working Papers 0631, Banco de Espa�a.
  7. repec:ebl:ecbull:v:5:y:2008:i:12:p:1-12 is not listed on IDEAS
  8. Ambler, Steve & Guay, Alain & Phaneuf, Louis, 2012. "Endogenous business cycle propagation and the persistence problem: The role of labor-market frictions," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 47-62.
  9. Apostolis Philippopoulos & Petros Varthalitis & Vanghelis Vassilatos, 2012. "On the optimal mix of fiscal and monetary policy actions," Working Papers 150, Bank of Greece.
  10. Apostolis Philippopoulos & Petros Varthalitis & Vanghelis Vassilatos, 2013. "Optimal Fiscal Action in an Economy with Sovereign Premia and without Monetary Independence: An Application to Italy," CESifo Working Paper Series 4199, CESifo Group Munich.

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