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Recursive Factor of Production Interrelations and Endogenous Cycling

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  • Cassing, Shirley
  • Kollintzas, Tryphon

Abstract

A multivariate linear rational expectations equilibrium version of the Lucas-Prescott investment model is developed to study the behavior of factors of productions with recursive interrelations. The connection between these interrelations and endogenous cycling is established in a testable way. Maximum likelihood estimates, using annual postwar aggregate U.S. manufacturing data, provide strong evidence of capital-labor interrelations that induce a labor overshooting type of endogenous cycling. This raises questions for the methodology of current real business cycle models which rule out the possibility of such interrelations. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Cassing, Shirley & Kollintzas, Tryphon, 1991. "Recursive Factor of Production Interrelations and Endogenous Cycling," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(2), pages 417-440, May.
    • Handle: RePEc:ier:iecrev:v:32:y:1991:i:2:p:417-40
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    Cited by:

    1. Xavier Fairise & Patrick Fève, 2006. "Labor adjustment costs and complex eigenvalues," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(1), pages 95-110, September.
    2. Palm, Franz C. & Peeters, Marga & Pfann, Gerard A., 1993. "The dynamics of investment and labour demand: Theoretical issues and an application to the Dutch manufacturing industry," MPRA Paper 33042, University Library of Munich, Germany.
    3. Palm, Franz C. & Pfann, Gerard A., 1998. "Sources of asymmetry in production factor dynamics," Journal of Econometrics, Elsevier, vol. 82(2), pages 361-392, February.
    4. Kruiniger, Hugo, 2000. "On the solution of the linear rational expectations model with multiple lags," Journal of Economic Dynamics and Control, Elsevier, vol. 24(4), pages 535-559, April.

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