Abstract

http://ssrn.com/abstract=1567619
 
 

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Firm-Specific Capital, Nominal Rigidities and the Business Cycle


David Altig


Federal Reserve Banks - Federal Reserve Bank of Atlanta; Federal Reserve Bank of Cleveland; University of Chicago - Booth School of Business

Lawrence J. Christiano


Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Jesper Lindé


Sveriges Riksbank - Research Division

March 5, 2010

FRB International Finance Discussion Paper No. 990

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.

Number of Pages in PDF File: 52

JEL Classification: E3, E4, E5

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Date posted: March 11, 2010  

Suggested Citation

Altig, David and Christiano, Lawrence J. and Lindé, Jesper, Firm-Specific Capital, Nominal Rigidities and the Business Cycle (March 5, 2010). FRB International Finance Discussion Paper No. 990. Available at SSRN: http://ssrn.com/abstract=1567619 or http://dx.doi.org/10.2139/ssrn.1567619

Contact Information

David Altig
Federal Reserve Banks - Federal Reserve Bank of Atlanta
1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
Federal Reserve Bank of Cleveland ( email )
East 6th & Superior
Cleveland, OH 44101-1387
United States
216-579-2041 (Phone)
University of Chicago - Booth School of Business
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
Lawrence J. Christiano
Northwestern University ( email )
2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8231 (Phone)
847-491-7001 (Fax)
Federal Reserve Bank of Cleveland
East 6th & Superior
Cleveland, OH 44101-1387
United States
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL 60604
United States
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55480
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Jesper Lindé (Contact Author)
Sveriges Riksbank - Research Division ( email )
S-103 37 Stockholm
Sweden
+46 8 787 0873 (Phone)
HOME PAGE: http://www.riksbank.com
Feedback to SSRN


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