IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/17246.html

Countercyclical Elasticity of Substitution

Author

Listed:
  • Koh, Dongya
  • Santaeulà lia-Llopis, Raül

Abstract

We empirically show that the short-run elasticity of substitution between capital and labor is countercyclical. In recessions, capital and labor are more substitutable than in expansions. This countercyclicality of the elasticity of substitution introduces an asymmetry in an otherwise standard competitive-markets business cycle model that contributes to resolve several labor-market puzzles: the labor productivity puzzle, the Dunlop-Tarshis phenomenon, the hours-productivity puzzle, and the labor share puzzle. Interestingly, the cyclicality of the elasticity of substitution is per se not a source of aggregate fluctuations, but it propagates the effects of other shocks.

Suggested Citation

  • Koh, Dongya & Santaeulà lia-Llopis, Raül, 2022. "Countercyclical Elasticity of Substitution," CEPR Discussion Papers 17246, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17246
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP17246
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. Chen, Chaoran, 2020. "Capital-skill complementarity, sectoral labor productivity, and structural transformation," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:17246. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.