Labour markets and firm-specific capital in new Keynesian general equilibrium models

Charles Nolan, Christoph Thoenissen

    Research output: Contribution to journalArticlepeer-review

    1 Citation (Scopus)

    Abstract

    This paper examines the consequences of introducing firm-specific capital into a selection of commonly used sticky price business cycle models. We find that modelling firm-specific capital markets greatly reduces the response of inflation to changes in average real marginal cost. Calibrated to US data, we find that models with firm-specific capital generate a less volatile, as well as more persistent series for inflation than those which assume an economy wide market for capital. Overall, it is not clear if assuming firm-specific capital helps our models match the US business cycle data. (c) 2007 Elsevier Inc. All rights reserved.

    Original languageEnglish
    Pages (from-to)817-843
    Number of pages27
    JournalJournal of Macroeconomics
    Volume30
    Issue number3
    DOIs
    Publication statusPublished - Sept 2008

    Keywords

    • intertemporal macro
    • monetary policy
    • real and nominal labour market distortions
    • firm-specific capital
    • BUSINESS-CYCLE
    • PRICES

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