Firm-specific capital, inflation persistence and the sources of business cycles
Joao Madeira ()
European Economic Review, 2015, vol. 74, issue C, 229-243
This paper estimates a firm-specific capital DSGE model. Firm-specific capital improves the fit of DSGE models to the data (as shown by a large increase in the value of the log marginal likelihood). This results from a lower implied estimate of the NKPC slope for a given degree of price stickiness. Firm-specific capital leads to a better fit to the volatilities of macro variables and a greater persistence of inflation. It is also shown that firm-specific capital reduces the dependence of New Keynesian models on price markup shocks and that it increases the persistence of output to monetary shocks.
Keywords: New Keynesian models; Sticky prices; DSGE; Business cycles; Firm-specific capital; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E20 E22 E27 E30 E32 E37 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:74:y:2015:i:c:p:229-243
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