scholarly journals A Search-Theoretic Monetary Business Cycle Model with Capital Formation

2006 ◽  
Vol 6 (1) ◽  
pp. 1-36 ◽  
Author(s):  
Martin Menner
Keyword(s):  
Business Cycle ◽  
Adjustment Costs ◽  
Capital Formation ◽  
Propagation Mechanism ◽  
Monetary Model ◽  
Search Intensity ◽  
Capital Adjustment ◽  
Inventory Investment ◽  
Business Cycle Model ◽  
Divisible Goods

Search-theory has become the main paradigm for the micro-foundation of money. But no comprehensive business cycle analysis has been undertaken yet with a search-based monetary model. This paper extends the model with divisible goods and divisible money of Shi (JET, 1998) to allow for capital formation, analyses the monetary propagation mechanism and contrasts the model's implications with US business cycle stylized facts. The propagation mechanism based on a feedback between increased search intensity and depleted inventories only survives in the presence of non-negligible capital adjustment costs. With intermediate adjustment costs the model is able to replicate fairly well the volatility and cross-correlation with output of key US time series, including sales and inventory investment.

scholarly journals Investment Dispersion and the Business Cycle

2014 ◽  
Vol 104 (4) ◽  
pp. 1392-1416 ◽  
Author(s):  
Rüdiger Bachmann ◽  
Christian Bayer
Keyword(s):  
Business Cycle ◽  
Adjustment Costs ◽  
Firm Risk ◽  
Firm Level ◽  
Cross Sectional ◽  
Capital Adjustment ◽  
Investment Rates ◽  
Business Cycle Model ◽  
The Business Cycle ◽  
Heterogeneous Firm

The cross-sectional dispersion of firm-level investment rates is procyclical. This makes investment rates different from productivity, output, and employment growth, which have countercyclical dispersions. A calibrated heterogeneous-firm business cycle model with nonconvex capital adjustment costs and countercyclical dispersion of firm-level productivity shocks replicates these facts and produces a correlation between investment dispersion and aggregate output of 0.53, close to 0.45 in the data. We find that small shocks to the dispersion of productivity, which in the model constitutes firm risk, suffice to generate the mildly procyclical investment dispersion in the data but do not produce serious business cycles. (JEL D42, D92, E32, G31, G32)

scholarly journals What is the Real Story for Interest Rate Volatility?

2000 ◽  
Vol 1 (1) ◽  
pp. 43-67 ◽  
Author(s):  
Andreas Hornstein ◽  
Harald Uhlig
Keyword(s):  
Interest Rate ◽  
Business Cycle ◽  
Interest Rates ◽  
Adjustment Costs ◽  
Real Business Cycle ◽  
Real Interest Rates ◽  
The Real ◽  
Time To Build ◽  
Interest Rate Volatility ◽  
Business Cycle Model

Abstract What is the source of interest rate volatility? Why do low interest rates precede business cycle booms? Most observers tend to assume that monetary policy is largely responsible for it. Indeed, a standard real business cycle model delivers rather small fluctuations in real interest rates. Here, however, we present two models of the real business cycle variety, in which the fluctuations of real rates are of similar magnitude as in the data, while simultaneously matching salient business cycle facts. The second model also replicates the cyclical behavior of real interest rates.The models build on recent work by Danthine and Donaldson, Jermann, and Boldrin, Christiano and Fisher. We assume that there are workers and capital owners. The first model posits habit formation and adjustment costs to the stock of capital. The second model assumes that it takes time to plan investment and time to build capital.

scholarly journals Inventories and the Business Cycle: An Equilibrium Analysis of (S, s) Policies

2007 ◽  
Vol 97 (4) ◽  
pp. 1165-1188 ◽  
Author(s):  
Aubhik Khan ◽  
Julia K Thomas
Keyword(s):  
Business Cycle ◽  
Equilibrium Analysis ◽  
Aggregate Fluctuations ◽  
Cycle Model ◽  
Delivery Costs ◽  
Inventory Investment ◽  
Cyclical Variability ◽  
Business Cycle Model ◽  
The Business Cycle ◽  
Inventory Accumulation

We develop an equilibrium business cycle model where nonconvex delivery costs lead firms to follow (S, s) inventory policies. Calibrated to postwar US data, the model reproduces two-thirds of the cyclical variability of inventory investment. Moreover, it delivers strongly procyclical inventory investment, greater volatility in production than sales, and a countercyclical inventory-to-sales ratio. Our model challenges several prominent claims involving inventories, including the widely held belief that they amplify aggregate fluctuations. Despite the comovement between inventory investment and final sales, GDP volatility is essentially unaltered by inventory accumulation, because procyclical inventory investment diverts resources from final production, thereby dampening fluctuations in sales. (JEL E22, E32).

scholarly journals Are labor unions important for business cycle fluctuations? Lessons from Bulgaria

2019 ◽  
Vol 10 (1) ◽  
pp. 143-161 ◽  
Author(s):  
Aleksandar Vasilev
Keyword(s):  
Business Cycle ◽  
Labor Markets ◽  
Propagation Mechanism ◽  
Government Sector ◽  
Sequential Bargaining ◽  
Business Cycle Model ◽  
Bargaining Procedure ◽  
Compare And Contrast ◽  
Monopoly Union ◽  
Better Than

Abstract In this paper, we investigate the quantitative importance of collective bargaining agreements for the observed fluctuations in Bulgarian labor markets. Following Maffezzoli (Rev Econ Dyn 4:860–892, 2001), we introduce a monopoly union into a real-business-cycle model with government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999–2018), and compare and contrast it to a model without unions. We find that the sequential bargaining procedure between the monopoly union and the stand-in firm produces an important internal propagation mechanism within the theoretical setup, which allows the monopoly model to fit data better than the alternative framework with perfectly-competitive labor markets.

scholarly journals The Market for Used Capital: Endogenous Irreversibility and Reallocation over the Business Cycle

2018 ◽  
Vol 108 (9) ◽  
pp. 2383-2419 ◽  
Author(s):  
Andrea Lanteri
Keyword(s):  
Business Cycle ◽  
Adjustment Costs ◽  
Physical Capital ◽  
Firm Level ◽  
Secondary Markets ◽  
Equilibrium Dynamics ◽  
Capital Adjustment ◽  
State Dependent ◽  
The Business Cycle ◽  
Investment Goods

This paper studies the business-cycle dynamics of secondary markets for physical capital and their effects on the macroeconomy. In the data, both capital reallocation and the price of used capital are procyclical. To rationalize these facts, I propose a model with endogenous partial irreversibility, where used investment goods are imperfect substitutes for new ones because of firm-level capital specificity. Equilibrium dynamics in the market for used capital induce countercyclical dispersion of marginal products of capital, propagate movements in aggregate TFP, and provide a microfoundation for state-dependent nonconvex capital adjustment costs. (JEL E22, E23, E32, G31)

LIQUIDITY CONSTRAINTS, HETEROGENEOUS HOUSEHOLDS AND SUNSPOT FLUCTUATIONS

2006 ◽  
Vol 10 (4) ◽  
pp. 529-544 ◽  
Author(s):  
JEAN-PAUL BARINCI ◽  
ARNAUD CHÉRON ◽  
FRANCOIS LANGOT
Keyword(s):  
Business Cycle ◽  
Liquidity Constraints ◽  
Returns To Scale ◽  
Propagation Mechanism ◽  
Aggregate Consumption ◽  
Model Driven ◽  
Business Cycle Model ◽  
The Business Cycle ◽  
Constant Returns To Scale ◽  
Endogenous Labor

This paper is concerned with the empirical relevance of indeterminacy and sunspots in explaining the business cycle. It argues that financial constraints provide a propagation mechanism able to generate business cycle facts observed in data in response to sunspot shocks. This point is demonstrated using an equilibrium business cycle model featuring heterogeneous households, endogenous labor supply and liquidity constraints. We first show that the model exhibits indeterminacy for roughly constant returns to scale. We then establish that our model accounts for stylized facts that neither the standard RBC model nor previous sunspots models have been able to capture. More specifically, the model driven purely by sunspots matches the procyclical movements in aggregate consumption, and the positively correlated forecastable changes of basic macroeconomic variables.

SEASONALITY, PRODUCTIVITY SHOCKS, AND SECTORAL COMOVEMENTS IN A REAL BUSINESS CYCLE MODEL FOR ITALY

2002 ◽  
Vol 6 (3) ◽  
pp. 337-356 ◽  
Author(s):  
Gianluca Cubadda ◽  
Giovanni Savio ◽  
Roberto Zelli
Keyword(s):  
Business Cycle ◽  
Propagation Mechanism ◽  
Real Business Cycle ◽  
Cycle Model ◽  
Productivity Shocks ◽  
Multivariate Technique ◽  
Stochastic Trends ◽  
Long Run ◽  
Business Cycle Model ◽  
Real Business Cycle Model

This paper investigates the degree of comovements in quarterly Italian time series of sectoral output. A recently developed multivariate technique for the empirical analysis of long-run, cyclical and seasonal comovements is used in the context of a multisectoral real-business-cycle model augmented with persistent seasonal shocks in productivity. Our empirical results emphasize the role of input–output relations in the propagation mechanism and indicate that sectoral outputs have a relatively low number of common stochastic trends, in conflict with the hypothesis of independent productivity shocks. In contrast, stochastic seasonals seem to move idiosyncratically. Furthermore, our findings suggest that the theoretical model should be extended to allow for deterministic seasonal shifts in preferences.

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