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Putty-clay capital and energy

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  • Andrew Atkeson
  • Patrick J. Kehoe

Abstract

We evaluate the ability of models with putty-clay capital and stochastic energy prices to account for the dynamics of energy use and output. Economists have noted a close relationship between changes in the price of energy and changes in output. Moreover, they have documents that this relationship is asymmetric: energy price increases are associated with large output charges while energy prices decreases are associated with small output changes. Finally, following energy price changes, energy use adjusts slowly over time. Standard models with putty-putty capital fail to reproduce the features of the data. In our study of putty-clay models, we first develop a simple characterization of equilibrium. We apply these results to solve a prototype model. Preliminary results suggest that models with putty-clay capital improve on putty-putty models in accounting for the data.

Suggested Citation

  • Andrew Atkeson & Patrick J. Kehoe, 1995. "Putty-clay capital and energy," Working Papers 548, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmwp:548
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Davis, Steven J. & Haltiwanger, John, 2001. "Sectoral job creation and destruction responses to oil price changes," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 465-512, December.
    2. Simon Gilchrist & John C. Williams, 2000. "Putty-Clay and Investment: A Business Cycle Analysis," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 928-960, October.
    3. Benjamin L Hunt, 2005. "Oil Price Shocks; Can they Account for the Stagflation in the 1970's?," IMF Working Papers 05/215, International Monetary Fund.
    4. Simon Gilchrist & John Williams, 1998. "Investment, capacity, and output: a putty-clay approach," Finance and Economics Discussion Series 1998-44, Board of Governors of the Federal Reserve System (U.S.).
    5. Backus, David K. & Crucini, Mario J., 2000. "Oil prices and the terms of trade," Journal of International Economics, Elsevier, pages 185-213.
    6. David R. Stockman, 2006. "Oil Shocks and Macroeconomic Activity: A Putty-Clay Perspective," Working Papers 06-15, University of Delaware, Department of Economics.

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