Intermediate Goods and Business Cycles: Implications for Productivity and Welfare

40 Pages Posted: 1 Sep 2010

See all articles by Susanto Basu

Susanto Basu

Boston College, College of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 1994

Abstract

This paper presents an aggregate demand-driven model of business cycles that provides a new explanation for the procyclicality of productivity, and simultaneously predicts large welfare losses from monetary non-neutrality. The key features of the model are an input- output production structure, imperfect competition, countercyclical markups, and, for some results, state- dependent price rigidity. True technical efficiency is procyclical even though production takes place with constant returns, without technology shocks or technological externalities. The paper has observable implications that distinguish it empirically from related work. These implications are generally supported by data from U.S. manufacturing industries.

Suggested Citation

Basu, Susanto, Intermediate Goods and Business Cycles: Implications for Productivity and Welfare (August 1994). NBER Working Paper No. w4817, Available at SSRN: https://ssrn.com/abstract=1669875

Susanto Basu (Contact Author)

Boston College, College of Arts and Sciences, Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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