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Delayed Adjustment and Persistence in Macroeconomic Models

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  • van Rens, Thijs

    (University of Warwick and Centre for Macroeconomics)

  • Vukotic, Marija

    (University of Warwick)

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 holds for both non-convex and convex cost functions, and for reasonable parameter values the e⁄ect is strong enough to match the persistence observed in the data. We discuss some evidence for our explanation and ways to test the model.

Suggested Citation

  • van Rens, Thijs & Vukotic, Marija, 2020. "Delayed Adjustment and Persistence in Macroeconomic Models," The Warwick Economics Research Paper Series (TWERPS) 1245, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1245
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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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