Technology shocks, capital utilization and sticky prices

Chetan Dave, Scott J. Dressler

Research output: Contribution to journalArticle

Abstract

We quantitatively evaluate a business-cycle environment featuring endogenous capital utilization and nominal price rigidity that illustrates a negative relationship between labor hours and technology (TFP) shocks and a positive relationship between hours and investment (MEI) shocks. Sticky prices induce firms to suppress changes in output due to TFP shocks through changes in the utilization rate of the existing capital stock and labor demand. MEI shocks have an indirect impact on output via their link with capital utilization, and are shown to be the dominant driver of post-1979 US business cycles.

Original languageEnglish (US)
Pages (from-to)2179-2191
Number of pages13
JournalJournal of Economic Dynamics and Control
Volume34
Issue number10
DOIs
StatePublished - Oct 2010

Keywords

  • Business-cycle shocks
  • Marginal efficiency of investment
  • Nominal rigidities
  • Total factor productivity

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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