Deep Dynamics

73 Pages Posted: 16 Feb 2021

See all articles by Nils Gottfries

Nils Gottfries

Uppsala University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Glenn Mickelsson

Handelsbanken

Karolina Stadin

Ratio Institute

Date Written: 2021

Abstract

How do firms adjust their output, inventories, employment and capital in response to demandside shocks? To understand this, we estimate a reduced-form model using firm-level panel data and we construct a theoretical model that can match the estimated impulse-response functions. A combination of convex adjustment costs and implementation lags explains input adjustment very well. Although inputs adjust slowly, production responds quickly to the demand shock and this adjustment is explained by a combination of increasing returns and increased utilization of the production factors. To avoid stock-outs, firms increase their inventories when demand increases.

JEL Classification: E220, E230, E240, E320

Suggested Citation

Gottfries, Nils and Mickelsson, Glenn and Stadin, Karolina, Deep Dynamics (2021). CESifo Working Paper No. 8873, Available at SSRN: https://ssrn.com/abstract=3784384 or http://dx.doi.org/10.2139/ssrn.3784384

Nils Gottfries (Contact Author)

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden
+46 18 471 2304 (Phone)
+46 18 471 1478 (Fax)

HOME PAGE: http://www.nek.uu.se/faculty/gottfries/index.html

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Glenn Mickelsson

Handelsbanken ( email )

United States

Karolina Stadin

Ratio Institute ( email )

P.O. Box 3203
SE-103 64 Stockholm
Sweden

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