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Plant-level nonconvex output adjustment and aggregate fluctuations

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  • Šustek, Roman

Abstract

In most manufacturing industries plant-level output is adjusted along three margins of capacity utilization: shiftwork, weekend work, and closing temporarily down. Due to the discrete and lumpy nature of these margins, only a fraction of plants adjust output in response to shocks. In a business cycle model calibrated to establishment-level observations, these nonconvexities make aggregate output less volatile than when plants can adjust smoothly. Further, the mass of adjusting plants is larger in downturns than in upturns, leading to counter-cyclical volatility of aggregate output and government policy being slightly more effective in recessions than in expansions.

Suggested Citation

  • Šustek, Roman, 2011. "Plant-level nonconvex output adjustment and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 400-414.
    • Handle: RePEc:eee:moneco:v:58:y:2011:i:4:p:400-414
    DOI: 10.1016/j.jmoneco.2011.08.001
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    1. Christian Bayer & Volker Tjaden, 2016. "Large Open Economies and Fixed Costs of Capital Adjustment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 21, pages 125-146, July.

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