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Labour Markets and Firm-Specific Capital in New Keynesian General Equilibrium Models

  • Charles Nolan

    ()

  • Christoph Thoenissen

    ()

This paper examines the consequences of introducing firm specific capital into a selection of commonly used sticky price business cycle models. We find that modelling firm-specific capital markets greatly reduces the response of inflation to changes in average real marginal cost. Calibrated to US data, we find that models with firm-specific capital generate a less volatile, as well as more persistent series for inflation than those which assume an economy wide market for capital. Overall, it is not clear if assuming firm-specific capital helps our models match the US business cycle data.

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File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/wp0501.pdf
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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200501.

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Date of creation: 15 Jan 2005
Date of revision: 15 May 2005
Handle: RePEc:san:cdmawp:0501
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