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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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