Flexibility and frictions in multisector models

Jorge Miranda-Pinto and Eric Young

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper documents two facts: (i) elasticities of substitution in production vary significantly across sectors, with manufacturing sectors being generally less flexible than service sectors, and (ii) during the Great Recession the rise in bond spreads varied systematically with these elasticities. Specifically, more flexible sectors paid lower spreads during the Great Recession. Moreover, among the less-flexible manufacturing sectors, sectors with relatively high flexibility and high debt saw their spreads rise less than average, while among the more-flexible service sectors the sectors with relatively high flexibility and high debt saw their spreads rise more. We interpret these results using a simple two-sector model with working capital constraints, and show that the model replicates these observations if manufacturing sectors face constraints on their purchases of intermediates while services face constraints on their purchases of labor/capital. The dynamics of intermediate prices and quantities support our results, as does a quantitative investigation of a 62-sector version of the US economy.

Pages: 45 pages
Date: 2018-05
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://cama.crawford.anu.edu.au/sites/default/fil ... anda-pinto_young.pdf (application/pdf)

Related works:
Journal Article: Flexibility and Frictions in Multisector Models (2022)
Working Paper: Flexibility and Frictions in Multisector Models (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2018-24

Access Statistics for this paper

More papers in CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University Contact information at EDIRC.
Bibliographic data for series maintained by Cama Admin ().