The impact of active aggregate demand on utilisation-adjusted TFP

Konstantin Gantert

No 9/2022, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: Non-clearing goods markets are an important driver of capacity utilisation and total factor productivity (TFP). The trade-off between goods prices and household search effort is central to goods market matching and therefore drives TFP over the business cycle. In this paper, I develop a New-Keynesian DSGE model with capital utilisation, worker effort, and expand it with goods market search-and-matching (SaM) to model non-clearing goods markets. I conduct a horse-race between the different capacity utilisation channels using Bayesian estimation and capacity utilisation survey data. Models that include goods market SaM improve the data fit, while the capital utilisation and worker effort channels are rendered less important compared to the literature. It follows that TFP fluctuations increase for demand and goods market mismatch shocks, while they decrease for technology shocks. This pattern increases as goods market frictions increase and as prices become stickier. The paper shows the importance of non-clearing goods markets in explaining the difference between technology and TFP over the business cycle.

Keywords: Bayesian estimation; capacity utilisation; non-clearing goods markets; search-and-matching; total factor productivity (search for similar items in EconPapers)
JEL-codes: E22 E23 E3 J20 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-dge, nep-eff and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:92022

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