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Deep Dynamics

Nils Gottfries, Glenn Mickelsson and Karolina Stadin

No 8873, CESifo Working Paper Series from CESifo

Abstract: How do firms adjust their output, inventories, employment and capital in response to demandsideshocks? To understand this, we estimate a reduced-form model using firm-level panel dataand we construct a theoretical model that can match the estimated impulse-response functions.A combination of convex adjustment costs and implementation lags explains input adjustmentvery well. Although inputs adjust slowly, production responds quickly to the demand shock andthis adjustment is explained by a combination of increasing returns and increased utilization ofthe production factors. To avoid stock-outs, firms increase their inventories when demandincreases.

Keywords: production function; productivity; Solow residual; labor hoarding; effort; organizational capital; capacity; returns to scale; markup; inventory investment (search for similar items in EconPapers)
JEL-codes: E22 E23 E24 E32 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-eff and nep-mac
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