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Labour markets and firm-specific capital in New Keynesian general equilibrium models

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  • Nolan, Charles
  • Thoenissen, Christoph

Abstract

This paper examines the consequences of introducing firm-specific capital into a selection of commonly used sticky price business cycle models. We find that modelling firm-specific capital markets greatly reduces the response of inflation to changes in average real marginal cost. Calibrated to US data, we find that models with firm-specific capital generate a less volatile, as well as more persistent series for inflation than those which assume an economy wide market for capital. Overall, it is not clear if assuming firm-specific capital helps our models match the US business cycle data.

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  • Nolan, Charles & Thoenissen, Christoph, 2008. "Labour markets and firm-specific capital in New Keynesian general equilibrium models," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 817-843, September.
    • Handle: RePEc:eee:jmacro:v:30:y:2008:i:3:p:817-843
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    1. Madeira, João, 2015. "Firm-specific capital, inflation persistence and the sources of business cycles," European Economic Review, Elsevier, vol. 74(C), pages 229-243.
    2. Joao Madeira, 2012. "Evaluating the Role of Firm-Specific Capital in New Keynesian models," Discussion Papers 1204, University of Exeter, Department of Economics.

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