Factor-Hoarding and the Propagation of Business-Cycle Shocks
Abstract
This paper analyzes the role of variable capital-utilization rates in propagating
shocks over the business cycle. The model on which our analysis is based treats variable
capital-utilization rates as a form of factor-hoarding. We argue that variable capital-utilization
rates are a quantitatively important source of propagation to business-cycle shocks.
With this additional source of propagation, the volatility of exogenous technology
shocks needed to explain the observed variability in aggregate U.S. output is significantly
reduced relative to standard real-business-cycle models.
Type
Journal articlePermalink
https://hdl.handle.net/10161/2015Collections
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