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Deep Dynamics

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  • Nils Gottfries
  • Glenn Mickelsson
  • Karolina Stadin

Abstract

How do firms adjust their output, inventories, employment and capital in response to demandsideshocks? To understand this, we estimate a reduced-form model using firm-level panel dataand we construct a theoretical model that can match the estimated impulse-response functions.A combination of convex adjustment costs and implementation lags explains input adjustmentvery well. Although inputs adjust slowly, production responds quickly to the demand shock andthis adjustment is explained by a combination of increasing returns and increased utilization ofthe production factors. To avoid stock-outs, firms increase their inventories when demandincreases.

Suggested Citation

  • Nils Gottfries & Glenn Mickelsson & Karolina Stadin, 2021. "Deep Dynamics," CESifo Working Paper Series 8873, CESifo.
    • Handle: RePEc:ces:ceswps:_8873
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    More about this item

    Keywords

    production function; productivity; Solow residual; labor hoarding; effort; organizational capital; capacity; returns to scale; markup; inventory investment;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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