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  • Open Daily: 10am - 10pm
    Alley-side Pickup: 10am - 7pm

    3038 Hennepin Ave Minneapolis, MN
    612-822-4611

Open Daily: 10am - 10pm | Alley-side Pickup: 10am - 7pm
3038 Hennepin Ave Minneapolis, MN
612-822-4611
Finance and Economics Discussion Series: Putty-Clay and Investment: A Business Cycle Analysis

Finance and Economics Discussion Series: Putty-Clay and Investment: A Business Cycle Analysis

Gilchrist, Simon
Williams, John C.
United States Federal Reserve Board

Paperback

General Political Science

Publisher Price: $15.75

ISBN10: 128872151X
ISBN13: 9781288721511
Publisher: Bibliogov
Published: Feb 6 2013
Pages: 48
Weight: 0.23
Height: 0.10 Width: 7.44 Depth: 9.69
Language: English
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 hump-shaped response of hours, persistence in output growth, and positive comovement in the forecastable components of output and hours. Capacity constraints result in a 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.

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