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Vertical Production and Macroeconomic Persistence: The Case of an Emerging Market Economy

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  • Mai Farid

Abstract

Empirical studies reveal persistence of macroeconomic variables to nominal shocks. However, theoretical models fail to match the data. This paper develops a Dynamic Stochastic General Equilibrium (DSGE) model with vertical input-output production, imperfect competition and staggered prices at each stage of production to reconcile theoretical models with empirical observations. We find that output response to stage-specific technological change and demand shock is more persistent the greater the number of production stages and the larger the share of intermediate goods in final good production. Depending on the source of technological change, we may either have contractionary or expansionary impact on macroeconomic variables.

Suggested Citation

  • Mai Farid, "undated". "Vertical Production and Macroeconomic Persistence: The Case of an Emerging Market Economy," Discussion Papers 09/11, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:09/11
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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