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Persistence without too much price stickiness: the role of variable factor utilization

Katharine Neiss () and Evi Pappa ()

Review of Economic Dynamics, 2005, vol. 8, issue 1, 231-255

Abstract: We study the propagation of monetary shocks in a sticky price model with capital utilization and labor effort. Variable factor utilization enriches the propagation mechanism of monetary shocks by reducing the sensitivity of marginal costs to changes in aggregate output. Variable labor effort is relatively more important for generating persistence than variable capital utilization, except when depreciation is fairly unresponsive to changes in utilization. In addition to reinforcing the propagation mechanism of monetary shocks, volatilities and comovements of output, capacity utilization and hours produced by the model are close to those observed in the UK. (Copyright: Elsevier)

Keywords: real and nominal rigidities; effort; capital utilization; persistence. (search for similar items in EconPapers)
JEL-codes: E51 E22 (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:red:issued:v:8:y:2005:i:1:p:231-255

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DOI: 10.1016/j.red.2004.10.008

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