Fixed adjustment costs and aggregate fluctuations

Michael Elsby and Ryan Michaels

Journal of Monetary Economics, 2019, vol. 101, issue C, 128-147

Abstract: This paper studies the analytics of a canonical model of lumpy microeconomic adjustment. We provide a novel characterization of the implied aggregate dynamics. In general, the distribution of firm outcomes follows a simple and intuitive law of motion that links aggregate outcomes to rates of adjustment. Analytical approximations reveal, however, that the aggregate dynamics are approximately invariant to a relevant range of adjustment costs. This neutrality is an aggregation result that emerges from a symmetry property in the distributional dynamics, independent of market equilibrium considerations. Quantitative illustrations confirm these results for parameterizations used in the employment and price adjustment literatures.

Keywords: Lumpy microeconomic adjustment; Ss model; Cross-sectional dynamics; Aggregate employment dynamics (search for similar items in EconPapers)
JEL-codes: E24 E3 J23 J63 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Fixed Adjustment Costs and Aggregate Fluctuations (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:101:y:2019:i:c:p:128-147

DOI: 10.1016/j.jmoneco.2018.07.008

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