Labour markets and firm-specific capital in New Keynesian general equilibrium models

Charles Nolan and Christoph Thoenissen

Journal of Macroeconomics, 2008, vol. 30, issue 3, 817-843

Abstract: This paper examines the consequences of introducing firm-specific capital into a selection of commonly used sticky price business cycle models. We find that modelling firm-specific capital markets greatly reduces the response of inflation to changes in average real marginal cost. Calibrated to US data, we find that models with firm-specific capital generate a less volatile, as well as more persistent series for inflation than those which assume an economy wide market for capital. Overall, it is not clear if assuming firm-specific capital helps our models match the US business cycle data.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:30:y:2008:i:3:p:817-843

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