Factor-Hoarding and the Propagation of Business-Cycle Shocks

AMERICAN ECONOMIC REVIEW, Vol. 86, No. 5, December 1996

Posted: 24 Feb 1997

See all articles by A. Craig Burnside

A. Craig Burnside

Duke University - Department of Economics; University of Glasgow - Department of Economics; National Bureau of Economic Research (NBER)

Martin Eichenbaum

Northwestern University; National Bureau of Economic Research (NBER)

Abstract

This paper analyzes the role of variable capital-utilization rates in propagating shocks over the business cycle. The model on which our analysis is based treats variable capital-utilization rates as a form of factor-hoarding. We argue that variable capital-utilization rates are a quantitatively important source of propagation to business-cycle shocks. With this additional source of propagation, the volatility of exogenous technology shocks needed to explain the observed variability in aggregate U.S. output is significantly reduced relative to standard real-business-cycle models.

JEL Classification: E32, E22, C52

Suggested Citation

Burnside, Craig and Eichenbaum, Martin, Factor-Hoarding and the Propagation of Business-Cycle Shocks. AMERICAN ECONOMIC REVIEW, Vol. 86, No. 5, December 1996, Available at SSRN: https://ssrn.com/abstract=3755

Craig Burnside

Duke University - Department of Economics ( email )

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University of Glasgow - Department of Economics

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National Bureau of Economic Research (NBER)

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Martin Eichenbaum (Contact Author)

Northwestern University ( email )

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National Bureau of Economic Research (NBER)

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