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Endogenous capacity utilization and the asymmetric effects of monetary policy



This paper investigates the role of variable capacity utilization as a source of asymmetries in the relationship between monetary policy and economic activity within a dynamic stochastic general equilibrium framework. The source of the asymmetry is directly linked to the bottlenecks and stock-outs that emerge from the existence of capacity constraints in the real side of the economy. Money has real effects due to the presence of rigidities in households' portfolio decisions in the form of a Luces-Fuerst 'limited participation' constraint. The model features variable capacity utilization rates across firms due to demand uncertainty. A monopolistic competitive structure provides additional effects through optimal mark-up changes. The overall message of this paper for monetary policy is that the same actions may have different effects depending on the capacity utilization rate of the economy.

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  • Pedro Pablo Alvarez Lois, 2000. "Endogenous capacity utilization and the asymmetric effects of monetary policy," UFAE and IAE Working Papers 469.00, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  • Handle: RePEc:aub:autbar:469.00

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    References listed on IDEAS

    1. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
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    Cited by:

    1. Sarah Lein & Eva Koeberl, 2009. "Capacity utilisation, constraints and price adjustments under the microscope," KOF Working papers 09-239, KOF Swiss Economic Institute, ETH Zurich.

    More about this item


    Capacity Constraints; Limited Participation; Idiosyncratic Demand Uncertainty; Endogenous Mark-Up;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical


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