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Procyclical Productivity in New Keynesian Models

Author

Listed:
  • Zhesheng Qiu

    (City University of Hong Kong)

  • Jose-Victor Rios-Rull

    (University of Pennsylvania)

Abstract

We propose an easy-to-use search friction in the goods markets in medium-sized New Key-nesian models. This friction allows increases in measured productivity in response to increases in expenditures via higher search e?ort from households. As a result markups can become procyclical and labor share countercyclical. Unlike in models that pose variable capital utilization and ?xed costs to generate procyclical productivity, ?rms do not have to spend more to achieve it. We estimate the model matching impulse responses with Bayesian techniques and show superior per-formance of models with search frictions relative to the state of the art alternative models in the literature. Our estimates also display low ?xed costs of production and lower Frisch elasticities.

Suggested Citation

  • Zhesheng Qiu & Jose-Victor Rios-Rull, 2021. "Procyclical Productivity in New Keynesian Models," PIER Working Paper Archive 22-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Handle: RePEc:pen:papers:22-006
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    More about this item

    Keywords

    Procyclical Productivity; New Keynesian Models; Labor Share; Markups; Search;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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