Advanced Search
MyIDEAS: Login to save this paper or follow this series

Stochastic Capital Depreciation and the Comovement of Hours and Productivity

Contents:

Author Info

Abstract

In this article, we demonstrate that a small degree of stochastic variation in the depreciation rate of capital can greatly reduce the comovement between hours worked and labor productivity in a neoclassical growth model. The depreciation rate is modeled as a Markov process to place a strict upper bound and to ensure that variation and not the level of the rate is driving the result. Markov switching implies nonlinear decision rules in the dynamic stochastic general equilibrium model (DSGE). Our contribution to DSGE solution methodologies in the presence of Markov switching is to apply Judd's (1998) projection method to nonlinear decision rules. This approach allows for nonlinear decision rules in a richer set of models with many more state variables than can be solved with grid based approximations. The results presented here suggest that Markov switching parameters offer a powerfull extension to DSGE models.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.szgerzensee.ch/fileadmin/Dateien_Anwender/Dokumente/working_papers/wp-0201.pdf
File Function: Full text
Download Restriction: None

Bibliographic Info

Paper provided by Swiss National Bank, Study Center Gerzensee in its series Working Papers with number 02.01.

as in new window
Length: 32 pages
Date of creation: Jan 2002
Date of revision:
Handle: RePEc:szg:worpap:0201

Contact details of provider:
Postal: Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee
Phone: ++41 (0)31 780 31 31
Fax: ++41 (0)31 780 31 00
Email:
Web page: http://www.szgerzensee.ch/

Order Information:
Postal: Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee
Email:

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Fangxiong Gong, 1995. "Regime-switching monetary policy and real business cycle fluctuations," Research Paper, Federal Reserve Bank of New York 9528, Federal Reserve Bank of New York.
  2. Omar LICANDRO & Luis A. PUCH, 2000. "Capital Utilization, Maintenance Costs and the Business Cycle," Annales d'Economie et de Statistique, ENSAE, issue 58, pages 143-164.
  3. Ambler, Steve & Paquet, Alain, 1994. "Stochastic Depreciation and the Business Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 101-16, February.
  4. David Andolfatto & Paul Gomme, 1997. "Monetary Policy Regimes and Beliefs," Working Papers 97002, University of Waterloo, Department of Economics, revised Jan 1997.
  5. Timothy Cogley, 1997. "Evaluating non-structural measures of the business cycle," Economic Review, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, pages 3-21.
  6. Robert G. King & Alexander L. Wolman, 1996. "Inflation Targeting in a St. Louis Model of the 21st Century," NBER Working Papers 5507, National Bureau of Economic Research, Inc.
  7. Simon Gilchrist & John C. Williams, 1998. "Putty-clay and investment: a business cycle analysis," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1998-30, Board of Governors of the Federal Reserve System (U.S.).
  8. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 467, University of Rochester - Center for Economic Research (RCER).
  9. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  10. Charles T. Carlstrom & Timothy S. Fuerst, 2000. "Monetary shocks, agency costs, and business cycles," Working Paper, Federal Reserve Bank of Cleveland 0011, Federal Reserve Bank of Cleveland.
  11. Steve Ambler & Alain Paquet, 1992. "Stochastic Depreciation and the Business Cycle Puzzle," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 8, CREFE, Université du Québec à Montréal.
  12. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  13. Cochrane, John H, 1994. "Permanent and Transitory Components of GNP and Stock Prices," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(1), pages 241-65, February.
  14. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  15. Ellen R. McGrattan & James A. Schmitz, Jr., 1999. "Maintenance and repair: too big to ignore," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13.
  16. Nancy L. Stokey & Sergio Rebelo, 1993. "Growth Effects of Flat-Rate Taxes," NBER Working Papers 4426, National Bureau of Economic Research, Inc.
  17. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1995. "Sectoral Solow residuals," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago 95-15, Federal Reserve Bank of Chicago.
  18. 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.
  19. Karim Abadir & Gabriel Talmain, . "Depreciation Rates and Capital Stocks," Discussion Papers, Department of Economics, University of York 98/3, Department of Economics, University of York.
  20. Collard, Fabrice & Kollintzas, Tryphon, 2000. "Maintenance, Utilization, and Depreciation along the Business Cycle," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2477, C.E.P.R. Discussion Papers.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Fransesco Furlanetto & Martin Seneca, 2010. "New Perspectives on Depreciation Shocks as a Source of Business Cycle Fluctuations," Economics, Department of Economics, Central bank of Iceland wp48, Department of Economics, Central bank of Iceland.
  2. Anatoliy Belaygorod & Michael J. Dueker, 2007. "The price puzzle and indeterminacy in an estimated DSGE model," Working Papers, Federal Reserve Bank of St. Louis 2006-025, Federal Reserve Bank of St. Louis.
  3. Belaygorod, Anatoliy & Dueker, Michael, 2009. "Indeterminacy, change points and the price puzzle in an estimated DSGE model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 33(3), pages 624-648, March.
  4. Ludmila Fadejeva & Aleksejs Melihovs, 2010. "Measuring Total Factor Productivity and Variable Factor Utilization," Eastern European Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 48(5), pages 63-101, September.
  5. repec:ebl:ecbull:v:3:y:2007:i:50:p:1-8 is not listed on IDEAS
  6. Paul Pichler, 2007. "On the accuracy of low-order projection methods," Economics Bulletin, AccessEcon, vol. 3(50), pages 1-8.
  7. George Bitros, 2010. "The theorem of proportionality in contemporary capital theory: An assessment of its conceptual foundations," The Review of Austrian Economics, Springer, Springer, vol. 23(4), pages 367-401, December.
  8. Tom Holden, 2012. "Medium-frequency cycles and the remarkable near trend-stationarity of output," School of Economics Discussion Papers, School of Economics, University of Surrey 1412, School of Economics, University of Surrey.
  9. Pedro P. Alvarez-Lois, 2005. "Production Inflexibilities and the Cost Channel of Monetary Policy," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 43(1), pages 170-193, January.
  10. Bitros, George C., 2009. "The Theorem of Proportionality in Mainstream Capital Theory: An Assessment of its Conceptual Foundations," MPRA Paper 17436, University Library of Munich, Germany.
  11. Richard Harrison & George Kapetanios & Alasdair Scott & Jana Eklund, 2008. "Breaks in DSGE models," 2008 Meeting Papers 657, Society for Economic Dynamics.
  12. Poudel, Diwakar & Sandal, Leif K. & Kvamsdal, Sturla F. & Steinshamn, Stein I., 2011. "Fisheries Management under Irreversible Investment: Does Stochasticity Matter?," Discussion Papers, Department of Business and Management Science, Norwegian School of Economics 2011/20, Department of Business and Management Science, Norwegian School of Economics.
  13. Jasmina Hasanhodzic & Laurence J. Kotlikoff, 2013. "Generational Risk–Is It a Big Deal?: Simulating an 80-Period OLG Model with Aggregate Shocks," BYU Macroeconomics and Computational Laboratory Working Paper Series, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory 2013-01, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory.
  14. Inwon Jang & Hyeon-seung Huh & Richard Wong, 2008. "Optimal capital investment under uncertainty: An extension," Economics Bulletin, AccessEcon, vol. 5(4), pages 1-7.
  15. repec:ebl:ecbull:v:5:y:2008:i:4:p:1-7 is not listed on IDEAS

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:szg:worpap:0201. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (library).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.