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Can Capacity Constraints Explain Asymmetries Of The Business Cycle?

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  • Knüppel, Malte

Abstract

In this paper, we investigate the ability of a modified real business cycle (RBC) model to reproduce asymmetries observed for macroeconomic variables over the business cycle. To replicate the empirical skewness of major U.S. macroeconomic variables, we introduce a capacity constraint into an otherwise prototypical RBC model. This constraint emerges because of the assumption of kinked marginal costs of utilization, where the kink is located at a utilization rate of 100%. We find that a model with a suitably calibrated cost function reproduces the empirical coefficients of skewness remarkably well.

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  • Knüppel, Malte, 2014. "Can Capacity Constraints Explain Asymmetries Of The Business Cycle?," Macroeconomic Dynamics, Cambridge University Press, vol. 18(1), pages 65-92, January.
    • Handle: RePEc:cup:macdyn:v:18:y:2014:i:01:p:65-92_00
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    Cited by:

    1. Chacko George & Florian Kuhn, 2019. "Business Cycle Implications of Capacity Constraints under Demand Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 94-121, April.
    2. Atolia, Manoj & Gibson, John & Marquis, Milton, 2018. "Asymmetry And The Amplitude Of Business Cycle Fluctuations: A Quantitative Investigation Of The Role Of Financial Frictions," Macroeconomic Dynamics, Cambridge University Press, vol. 22(2), pages 279-306, March.
    3. Xu Zhang & Xiaoxing Liu & Jianqin Hang & Dengbao Yao, 2018. "The dynamic causality between commodity prices, inflation and output in China: a bootstrap rolling window approach," Applied Economics, Taylor & Francis Journals, vol. 50(4), pages 407-425, January.
    4. Baum, Anja & Koester, Gerrit B., 2011. "The impact of fiscal policy on economic activity over the business cycle - evidence from a threshold VAR analysis," Discussion Paper Series 1: Economic Studies 2011,03, Deutsche Bundesbank.
    5. Moritz A. Roth, 2018. "International co-movements in recessions," Working Papers 1804, Banco de España.

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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