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Labour markets and firm-specific capital in New Keynesian general equilibrium models

  • Nolan, Charles
  • Thoenissen, Christoph

This paper examines the consequences of introducing firm-specific capital into a selection of commonly used sticky price business cycle models. We find that modelling firm-specific capital markets greatly reduces the response of inflation to changes in average real marginal cost. Calibrated to US data, we find that models with firm-specific capital generate a less volatile, as well as more persistent series for inflation than those which assume an economy wide market for capital. Overall, it is not clear if assuming firm-specific capital helps our models match the US business cycle data.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 30 (2008)
Issue (Month): 3 (September)
Pages: 817-843

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Handle: RePEc:eee:jmacro:v:30:y:2008:i:3:p:817-843
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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  12. Tommy Sveen & Lutz Weinke, 2004. "Pitfalls in the modeling of forward-looking price setting and investment decisions," Economics Working Papers 773, Department of Economics and Business, Universitat Pompeu Fabra.
  13. Collard, Fabrice & de la Croix, David, 1996. "Gift exchange and the business cycle: the fair wage strikes back," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997008, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Apr 1997.
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  15. Stock, James H. & Watson, Mark W., 1999. "Business cycle fluctuations in us macroeconomic time series," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 1, pages 3-64 Elsevier.
  16. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May.
  17. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
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  21. Tommy Sveen & Lutz Weinke, 2004. "New Perspectives on Capital and Sticky Prices," Working Paper 2004/03, Norges Bank.
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