Economic Crisis and the Asymmetric Multivariate Flexible Accelerator Model

Gerard Pfann

No 1990005, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper is concerned with dynamic factor demand systems that are based on the multivariate flexible accelerator (MFA) model of the firm. The MFA model is extended such that costs of adjusting factor inputs are assumed to be asymmetric. The asymmetric MFA model endogenously generates unbalanced demand for capital and labor between peaks and troughs of the business cycle, and encompasses the features of the traditional linear symmetric MFA model. The empirical analysis of the model is based on quarterly time series data of the Dutch manufacturing sector for the period 1971.I - 1984.IV, and 1955-1986. First, we test for the presence of systematic asymmetry in the series for factor inputs along the lines of Neftçi’s (1984) maximum likelihood (ML) approach. Moreover, we test for long-run relationships between the firm’s decision variables on the one hand and the firm’s forcing variables on the other hand. Second, generalised methods of moments (GMM) estimates of the structural parameters of the nonlinear optimality conditions for capital and employment are presented together with specification tests, and tests on structural stability. Finally, the pros et cons of the asymmetric specification in relation to the standard linear-quadratic model are discussed. The empirical results of two basically different econometric methods (ML and GMM) are found to be consistent and intuitively coherent : the asymmetric MFA model provides a satisfactory explanation of the phenomenon of economic crisis with respect to capital and labor input.

Keywords: cyclical factor demand; asymmetric adjustment costs; Neftçi’s likelihood test; GMM (search for similar items in EconPapers)
Pages: 40
Date: 1990-03-01
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:1990005

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