The Speed of Adjustment to Demand Shocks: A Markov-chain Measurement Using Micro Panel Data
AbstractIn this paper we measure the speed at which firms adjust to demand shocks using individual firm data. Identification of shocks is achieved by a combination of quantitative and qualitative judgments on capacity utilisation in micro survey data. A novel feature of our approach is the distinction between positive and negative shocks that allows us to also discriminate between the speed of adjustment following either kind of shock. Furthermore, there is no need for using previous data filtering to extract business cycles or equilibrium definitions but only to observe the states of the firms that define their economic situation. One main result is that the firms’ adjustment to these two shocks is varying in speed. It should therefore be paid regard to the separation of positive and negative shocks in empirical and theoretical models. The findings of this paper bear implications for monetary policy making and model building alike.
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Bibliographic InfoPaper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 07-170.
Length: 23 pages
Date of creation: Jun 2007
Date of revision:
demand shock; Markov-chain; microfoundation;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
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- Rolf Schenker, 2008. "Qualitative und quantitative Umfragedaten – ein Vergleich auf Mikroebene," KOF Analysen, KOF Swiss Economic Institute, ETH Zurich, vol. 2(2), pages 47-57, June.
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