Inflation and Output Dynamics with Firm-Owned Capital
UPF Economics and Business Working Paper No. 702
25 Pages Posted: 12 Aug 2004
Date Written: July 2004
We model firm-owned capital in a stochastic dynamic New-Keynesian general equilibrium model a la Calvo. We find that this structure implies equilibrium dynamics which are quantitatively different from the ones associated with a benchmark case where households accumulate capital and rent it to firms. Our findings therefore stress the importance of modeling an investment decision at the firm level - in addition to a meaningful price setting decision. Along the way we argue that the problem of modeling firm-owned capital with Calvo price-setting has not been solved in a correct way in the previous literature.
Keywords: Monetary policy shocks, sticky prices, investments
JEL Classification: E22, E31
Suggested Citation: Suggested Citation