Firm-Specific Capital, Nominal Rigidities and the Business Cycle

David Altig, Lawrence Christiano, Martin Eichenbaum and Jesper Lindé

Review of Economic Dynamics, 2011, vol. 14, issue 2, 225-247

Abstract: This paper formulates and estimates a three-shock US business cycle model. The estimated model accounts for a substantial fraction of the cyclical variation in output and is consistent with the observed inertia in inflation. This is true even though firms in the model reoptimize prices on average once every 1.8 quarters. The key feature of our model underlying this result is that capital is firm-specific. If we adopt the standard assumption that capital is homogeneous and traded in economy-wide rental markets, we find that firms reoptimize their prices on average once every 9 quarters. We argue that the micro implications of the model strongly favor the firm-specific capital specification. (Copyright: Elsevier)

Keywords: Sticky prices and wages; Inflation inertia; Monetary policy shocks; Neutral and investment-specific technology shocks; Structural vector autoregressive (VAR) model (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (268)

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Working Paper: Firm-Specific Capital, Nominal Rigidities and the Business Cycle (2005)
Working Paper: Firm-Specific Capital, Nominal Rigidities and the Business Cycle (2005)
Working Paper: Online Appendix to "Firm-Specific Capital, Nominal Rigidities and the Business Cycle" (2005)
Working Paper: Firm-specific capital, nominal rigidities, and the business cycle (2004)
Working Paper: Firm-specific capital, nominal rigidities and the business cycle (2004)
Working Paper: Firm-Specific Capital, Nominal Rigidities and the Business Cycle (2004)
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DOI: 10.1016/j.red.2010.01.001

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