Procyclical Productivity in New Keynesian Models

Zhesheng Qiu and José-Víctor Ríos-Rull

No 29769, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose an easy-to-use search friction in the goods markets in medium-sized New Keynesian models. This friction allows increases in measured productivity in response to increases in expenditures via higher search effort from households. As a result markups can become procyclical and labor share countercyclical. Unlike in models that pose variable capital utilization and fixed costs to generate procyclical productivity, firms do not have to spend more to achieve it. We estimate the model matching impulse responses with Bayesian techniques and show superior performance of models with search frictions relative to the state of the art alternative models in the literature. Our estimates also display low fixed costs of production and lower Frisch elasticities.

JEL-codes: E01 E32 E52 (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-ban, nep-dge, nep-lab, nep-mac and nep-ore
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