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Nonconvex Margins of Output Adjustment and Aggregate Fluctuations

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  • Sustek, Roman

Abstract

In most manufacturing industries output is adjusted in a lumpy way along three margins: shiftwork, weekend work, and closing a plant temporarily down. We incorporate such decisions into a dynamic general equilibrium model and study: (i) if such micro-level nonconvexities magnify business cycles; and (ii) if the aggregate effects of changes in firms' borrowing costs due to monetary policy shocks vary over the cycle. Calibrated to industrial observations, the model implies that aggregate output is in fact 25% less volatile than in an economy without such features, and monetary policy shocks have similar effects on output in recessions as in expansions.

Suggested Citation

  • Sustek, Roman, 2009. "Nonconvex Margins of Output Adjustment and Aggregate Fluctuations," MPRA Paper 17486, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:17486
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    References listed on IDEAS

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    More about this item

    Keywords

    Nonconvexities; business cycles; capacity utilization; monetary policy; asymmetries;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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