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Delayed Adjustment and Persistence in Macroeconomic Models

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  • THIJS VAN RENS
  • MARIJA VUKOTIĆ

Abstract

Estimated impulse responses of investment and hiring typically peak well after the impact of a shock. Standard models with adjustment costs in capital and labor do not exhibit such delayed adjustment, but we argue that it arises naturally when we relax the assumption that the production technology is separable over time. This result, which holds for both convex and nonconvex cost functions, is strong enough to match the persistence observed in the data for reasonable parameter values. We discuss some evidence for our explanation and ways to test it.

Suggested Citation

  • Thijs Van Rens & Marija Vukotić, 2023. "Delayed Adjustment and Persistence in Macroeconomic Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(6), pages 1325-1356, September.
    • Handle: RePEc:wly:jmoncb:v:55:y:2023:i:6:p:1325-1356
    DOI: 10.1111/jmcb.13011
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