Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
986379 | Review of Economic Dynamics | 2011 | 23 Pages |
Abstract
This paper formulates and estimates a three-shock U.S. business cycle model. The estimated model accounts for a substantial fraction of the cyclical variation in output and is consistent with the observed inertia in inflation. This is true even though firms in the model re-optimize prices on average once every 1.8 quarters. The key feature of our model underlying this result is that capital is firm-specific. If we adopt the standard assumption that capital is homogeneous and traded in economy-wide rental markets, we find that firms re-optimize their prices on average once every 9 quarters. We argue that the micro implications of the model strongly favor the firm-specific capital specification.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
David Altig, Lawrence J. Christiano, Martin Eichenbaum, Jesper Lindé,