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Capacity utilization and Monetary Policy

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  • Pedro Pablo Álvarez Lois

    ()
    (Universidad Carlos III de Madrid)

Abstract

This paper presents a model featuring variable utilization rates across firms due to production inflexibilities and idiosyncratic demand uncertainty. Within a New Keynesian framework, we show how the corresponding bottlenecks and stock-outs generate asymmetries in the transmission mechanism of monetary policy. We derive an expression for the Phillips curve where the dynamics of inflation depend on real marginal costs and on a measure of resource underutilization.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/03/Fic/dt0306e.pdf
File Function: First version, May 2003
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0306.

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Length: 48 pages
Date of creation: May 2003
Date of revision:
Handle: RePEc:bde:wpaper:0306

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Related research

Keywords: Capacity Constraints; Nominal Rigidities Idiosyncratic Uncertainty; Asymmetries;

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References

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  1. J. J. Dolado & R. Maria-Dolores & F. J. Ruge-Murcia, 2002. "Nonlinear Monetary Policy Rules: Some New Evidence For The Us," Economics Working Papers we022910, Universidad Carlos III, Departamento de Economía.
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  3. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 113(1), pages 1-45, February.
  4. Ireland, Peter N., 1997. "A small, structural, quarterly model for monetary policy evaluation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 47(1), pages 83-108, December.
  5. Michele Boldrin & Lawrence J. Christiano & Jonas D. M. Fisher, 2000. "Habit persistence, asset returns and the business cycle," Staff Report, Federal Reserve Bank of Minneapolis 280, Federal Reserve Bank of Minneapolis.
  6. Kim, Jinill, 2000. "Constructing and estimating a realistic optimizing model of monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 45(2), pages 329-359, April.
  7. Hairault, J.O. & Portier, F., 1992. "Money New-Keynesian Macroeconomics and the Business Cycles," Papiers d'Economie Mathématique et Applications, Université Panthéon-Sorbonne (Paris 1) 92.32, Université Panthéon-Sorbonne (Paris 1).
  8. Jordi Gali, 2002. "New Perspectives on Monetary Policy, Inflation, and the Business Cycle," NBER Working Papers 8767, National Bureau of Economic Research, Inc.
  9. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
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  12. Glenn D. Rudebusch, 2001. "Is The Fed Too Timid? Monetary Policy In An Uncertain World," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 203-217, May.
  13. Nobay, A. R. & Peel, D. A., 2000. "Optimal monetary policy with a nonlinear Phillips curve," Economics Letters, Elsevier, Elsevier, vol. 67(2), pages 159-164, May.
  14. Simon Gilchrist & John C. Williams, 2000. "Putty-Clay and Investment: A Business Cycle Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(5), pages 928-960, October.
  15. Cover, James Peery, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(4), pages 1261-82, November.
  16. Peter N. Ireland, 1999. "Sticky-Price Models of the Business Cycle: Specification and Stability," Boston College Working Papers in Economics, Boston College Department of Economics 426, Boston College Department of Economics.
  17. Julio J. Rotemberg & Michael Woodford, 1998. "Interest-Rate Rules in an Estimated Sticky Price Model," NBER Working Papers 6618, National Bureau of Economic Research, Inc.
  18. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(6), pages 1153-1207, December.
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  20. Jean-François Fagnart & Omar Licandro & Franck Portier, 1999. "Firm Heterogeneity, Capacity Utilization and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 433-455, April.
  21. Thomas Lubik & Frank Schorfheide, 2002. "Computing Sunspots in Linear Rational Expectations Models," Computing in Economics and Finance 2002, Society for Computational Economics 138, Society for Computational Economics.
  22. Karras, Georgios, 1996. "Are the Output Effects of Monetary Policy Asymmetric? Evidence from a Sample of European Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 58(2), pages 267-78, May.
  23. Eric Schaling, 1999. "The non-linear Phillips curve and inflation forecast targeting," Bank of England working papers, Bank of England 98, Bank of England.
  24. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, American Economic Association, vol. 78(3), pages 402-17, June.
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Cited by:
  1. Radim Bohacek & Hugo Rodriguez Mendizabal, 2003. "Credit Markets and the Propagation of Monetary Policy Shocks," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 599.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).

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