Putty-Clay and Investment: A Business Cycle Analysis

Simon Gilchrist and John Williams

No 6812, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a dynamic stochastic general equilibrium model with putty-clay technology that incorporates embodied technology, investment irreversibility, and variable capacity utilization. Low short-run capital-labor substitutability native to the putty-clay framework induces the putty-clay effect of a tight link between changes in capacity and movements in employment and output. As a result, persistent shocks to technology or factor prices generate business cycle dynamics absent in standard neoclassical models, including a prolonged lump-shaped response of hours, persistence in output growth, and positive comovement in the forecastable components of output and hours. Capacity constraints result in nonlinear aggregate production function that implies asymmetric responses to large shocks with recessions steeper and deeper than expansions. Minimum distance estimation of a two-sector model that nests putty-clay and neoclassical production technologies supports a significant role for putty-clay capital in explaining business-cycle and medium-run dynamics.

JEL-codes: D24 E22 (search for similar items in EconPapers)
Date: 1998-11
Note: ME EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published as Gilchrist, Simon and John C. Williams. "Putty-Clay And Investment: A Business Cycle Analysis," Journal of Political Economy, 2000, v108(5,Oct), 928-960.

Downloads: (external link)
http://www.nber.org/papers/w6812.pdf (application/pdf)

Related works:
Journal Article: Putty-Clay and Investment: A Business Cycle Analysis (2000)
Working Paper: Putty-clay and investment: a business cycle analysis (1998)
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:nbr:nberwo:6812

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w6812

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().