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Procyclical Productivity in New Keynesian Models

Zhesheng Qiu () and Jose-Victor Rios-Rull ()
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Zhesheng Qiu: City University of Hong Kong
Jose-Victor Rios-Rull: University of Pennsylvania

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

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

Keywords: Procyclical Productivity; New Keynesian Models; Labor Share; Markups; Search (search for similar items in EconPapers)
JEL-codes: E12 E32 E52 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2021-12-31
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