When does lumpy factor adjustment matter for aggregate dynamics?

Stephan Fahr () and Fang Yao

No 1016, Working Paper Series from European Central Bank

Abstract: We analyze the dynamic e¤ects of lumpy factor adjustments at the firm level onto the aggregate economy. We find that distinguishing between capital and labour as lumpy factors within the production function result in very dfferent dynamics for aggregate output, investment and labour in an otherwise standard real business cycle model. Lumpy capital leaves the RBC mainly unchanged, while lumpy labour allows for persistence and an inner propagation within the model in form of hump-shaped impulse repsonses. In addition, when modeling lumpy adjustments on both investment and labour, the aggregate effects are even stronger. We investigate the mechanisms underlying these results and identify the elasticity of factor supply as the most important element in accounting for these differences. JEL Classification: E32, E22, E24

Keywords: business cycles; Elasticity of; Lumpy investment; Lumpy labor adjustment (search for similar items in EconPapers)
Date: 2009-03
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
Note: 373346
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20091016

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