Putty-Clay and Investment: A Business Cycle Analysis / Simon Gilchrist, John C. Williams.

Format:

Book

Author/Creator:

Gilchrist, Simon.

Contributor:

National Bureau of Economic Research.

Williams, John C.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6812.

NBER working paper series no. w6812

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Putty-Clay and Investment

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1998.

Summary:

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.

Notes:

Print version record

November 1998.