Heterogeneous Productivity Shocks, Elasticity of Substitution and Aggregate Fluctuations

This paper presents a model of business cycles driven by shocks to consumer expectations regarding aggregate productivity. Agents are hit by heterogeneous productivity shocks, they observe their own productivity and a noisy public signal regarding aggregate productivity. The public signal gives rise to “noise shocks,” which have the features of aggregate demand shocks: they increase output, employment, and inflation in the short run and have no effects in the long run. Numerical examples suggest that the model can generate sizable amounts of noise-driven volatility. (JEL D83, D84, E21, E23, E32)

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FINANCIAL INTERMEDIATION AND AGGREGATE FLUCTUATIONS: A QUANTITATIVE ANALYSIS

Macroeconomic Dynamics ◽

10.1017/s1365100500017016 ◽

2000 ◽

Vol 4 (4) ◽

pp. 423-447 ◽

Cited By ~ 10

Author(s):

Russell Cooper ◽

João Ejarque

Keyword(s):

Quantitative Analysis ◽

Business Cycle ◽

Interest Rates ◽

Capital Stock ◽

Convincing Evidence ◽

Aggregate Fluctuations ◽

Productivity Shocks ◽

The Real ◽

Real Shocks ◽

The U.S

We investigate the quantitative behavior of business-cycle models in which the intermediation process acts either as a source of fluctuations or as a propagator of real shocks. In neither case do we find convincing evidence that the intermediation process is an important element of aggregate fluctuations. For an economy driven by intermediation shocks, consumption is not smoother than output, investment is negatively correlated with output, variations in the capital stock are quite large, and interest rates are procyclical. The model economy thus fails to match unconditional moments for the U.S. economy. We also structurally estimate parameters of a model economy in which intermediation and productivity shocks are present, allowing for the intermediation process to propagate the real shock. The unconditional correlations are closer to those observed only when the intermediation shock is relatively unimportant.

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On the macroeconomic effects of heterogeneous productivity shocks

The B E Journal of Macroeconomics ◽

10.1515/bejm-2013-0160 ◽

2016 ◽

Vol 16 (1) ◽

pp. 1-23

Author(s):

Christian Jensen

Keyword(s):

Asymptotic Distribution ◽

Moment Generating Function ◽

Aggregate Productivity ◽

Productivity Shocks ◽

Representative Agent ◽

Agent Model ◽

Macroeconomic Effects ◽

The Moment ◽

Heterogeneous Productivity ◽

Entire Distribution

AbstractThe conventional wisdom that producer heterogeneity washes out, and is therefore irrelevant for the aggregate economy, does not apply when producers compete monopolistically. Despite this, the effects of such heterogeneity can be reproduced with an appropriately redefined representative-agent framework where the equilibrium values of aggregates are expressed in terms of the moment generating function of the distribution of heterogeneity, or its asymptotic distribution. Increased heterogeneity raises aggregate productivity and production, more so the fiercer competition is. We propose a framework where the entire distribution of heterogeneity matters, yet computationally requires no more than a representative-agent model.

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