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Persistence without too much price stickiness: the role of variable factor utilization

Author

Listed:
  • Katharine S. Neiss

    (Bank of England)

  • Evi Pappa

    (London School of Economics)

Abstract

We study the propagation of monetary shocks in a sticky price model with capital utilization and labor effort. Variable factor utilization enriches the propagation mechanism of monetary shocks by reducing the sensitivity of marginal costs to changes in aggregate output. Variable labor effort is relatively more important for generating persistence than variable capital utilization, except when depreciation is fairly unresponsive to changes in utilization. In addition to reinforcing the propagation mechanism of monetary shocks, volatilities and comovements of output, capacity utilization and hours produced by the model are close to those observed in the UK. (Copyright: Elsevier)

Suggested Citation

  • Katharine S. Neiss & Evi Pappa, 2005. "Persistence without too much price stickiness: the role of variable factor utilization," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 231-255, January.
  • Handle: RePEc:red:issued:v:8:y:2005:i:1:p:231-255
    DOI: 10.1016/j.red.2004.10.008
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    References listed on IDEAS

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    Cited by:

    1. Philippopoulos, Apostolis & Varthalitis, Petros & Vassilatos, Vanghelis, 2015. "Optimal fiscal and monetary policy action in a closed economy," Economic Modelling, Elsevier, vol. 48(C), pages 175-188.
    2. Javier Andrés & Pablo Burriel & Ángel Estrada, 2006. "BEMOD: a DSGE model for the Spanish economy and the rest of the Euro area," Working Papers 0631, Banco de España;Working Papers Homepage.
    3. Martial Dupaigne, 2007. "Les variations choisies de l'utilisation du capital : une revue des implications macroéconomiques," Revue d'économie politique, Dalloz, vol. 117(2), pages 161-196.
    4. Albonico, Alice & Kalyvitis, Sarantis & Pappa, Evi, 2014. "Capital maintenance and depreciation over the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 273-286.
    5. Bratsiotis, George J. & Robinson, Wayne A., 2016. "Unit Total Costs: An Alternative Marginal Cost Proxy for Inflation Dynamics," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 1826-1849.
    6. Alok Johri, 2009. "Delivering Endogenous Inertia in Prices and Output," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 736-754, October.
    7. repec:eee:ecolet:v:160:y:2017:i:c:p:67-72 is not listed on IDEAS
    8. repec:ijc:ijcjou:y:2017:q:4:a:8 is not listed on IDEAS
    9. Mark Weder, 2008. "Hours and effort variation in sunspot-based business cycle theory," Economics Bulletin, AccessEcon, vol. 5(12), pages 1-12.
    10. Bandiera, Guilherme & Pappa, Evi & Sajedi, Rana & Vella, Eugenia, 2016. "Fiscal consolidation in a low inflation environment: pay cuts versus lost jobs," Bank of England working papers 628, Bank of England.
    11. Givens Gregory E, 2008. "Unemployment, Imperfect Risk Sharing, and the Monetary Business Cycle," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-43, March.
    12. Villa Stefania, 2012. "Capital Utilization and the Amplification Mechanism," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-22, September.
    13. Apostolis Philippopoulos & Petros Varthalitis & Vanghelis Vassilatos, 2013. "Optimal Fiscal Action in an Economy with Sovereign Premia and without Monetary Independence: An Application to Italy," CESifo Working Paper Series 4199, CESifo Group Munich.
    14. repec:ebl:ecbull:v:5:y:2008:i:12:p:1-12 is not listed on IDEAS
    15. Ambler, Steve & Guay, Alain & Phaneuf, Louis, 2012. "Endogenous business cycle propagation and the persistence problem: The role of labor-market frictions," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 47-62.
    16. Apostolis Philippopoulos & Petros Varthalitis & Vanghelis Vassilatos, 2017. "Fiscal Consolidation in an Open Economy with Sovereign Premia and without Monetary Policy Independence," International Journal of Central Banking, International Journal of Central Banking, vol. 13(4), pages 259-306, December.
    17. Matteo Salto, 2016. "Fiscal Policy after the Crisis – Workshop Proceedings," European Economy - Discussion Papers 2015 - 035, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    18. Apostolis Philippopoulos & Petros Varthalitis & Vanghelis Vassilatos, 2012. "On the optimal mix of fiscal and monetary policy actions," Working Papers 150, Bank of Greece.

    More about this item

    Keywords

    real and nominal rigidities; effort; capital utilization; persistence.;

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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