Nonconvex Margins of Output Adjustment and Aggregate Fluctuations

Roman Sustek

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Nonconvexities; business cycles; capacity utilization; monetary policy; asymmetries (search for similar items in EconPapers)
JEL-codes: E22 E23 E32 E52 (search for similar items in EconPapers)
Date: 2009-09-01
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:17486

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