Factor-Hoarding and the Propagation of Business-Cycle Shocks

Craig Burnside and Martin Eichenbaum

American Economic Review, 1996, vol. 86, issue 5, 1154-74

Abstract: This paper analyzes the role of variable capital-utilization rates in propagating shocks over the business cycle. The model on which the authors' analysis is based treats variable capital-utilization rates as a form of factor-hoarding. They 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. Copyright 1996 by American Economic Association.

Date: 1996
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Working Paper: Factor Hoarding and the Propagation of Business Cycles Shocks (1994)
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