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Firm-Specific Capital, Nominal Rigidities and the Business Cycle

52 Pages Posted: 11 Mar 2010  

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

Multiple version iconThere are 4 versions of this paper

Date Written: March 5, 2010

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.

JEL Classification: E3, E4, E5

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: https://ssrn.com/abstract=1567619 or http://dx.doi.org/10.2139/ssrn.1567619

David Altig

Federal Reserve Banks - Federal Reserve Bank of Atlanta

1000 Peachtree Street N.E.
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Federal Reserve Bank of Cleveland ( email )

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University of Chicago - Booth School of Business

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Chicago, IL 60637
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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
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United States

Federal Reserve Bank of Minneapolis

90 Hennepin Avenue
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United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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United States

Jesper Linde (Contact Author)

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden
+46 8 787 0873 (Phone)

HOME PAGE: http://www.riksbank.com

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