The Speed of Adjustment to Demand Shocks: A Markov-Chain Measurement Using Micro Panel Data

KOF Working Paper Series No. 170

23 Pages Posted: 3 Jul 2007

See all articles by Christian Müller-Kademann

Christian Müller-Kademann

Jacobs University

Eva M. Kberl

ETH Zürich - Swiss Institute for Business Cycle Research

Date Written: June 2007

Abstract

In this paper we measure the speed at which firms adjust to demand shocks using individual firm data. Identification of shocks is achieved by a combination of quantitative and qualitative judgments on capacity utilisation in micro survey data. A novel feature of our approach is the distinction between positive and negative shocks that allows us to also discriminate between the speed of adjustment following either kind of shock. Furthermore, there is no need for using previous data filtering to extract business cycles or equilibrium definitions but only to observe the states of the firms that define their economic situation. One main result is that the firms' adjustment to these two shocks is varying in speed. It should therefore be paid regard to the separation of positive and negative shocks in empirical and theoretical models. The findings of this paper bear implications for monetary policy making and model building alike.

Keywords: demand shock, Markov-chain, microfoundation

JEL Classification: E32, C4, C5

Suggested Citation

Müller-Kademann, Christian and Köberl, Eva Maria, The Speed of Adjustment to Demand Shocks: A Markov-Chain Measurement Using Micro Panel Data (June 2007). KOF Working Paper Series No. 170, Available at SSRN: https://ssrn.com/abstract=998019 or http://dx.doi.org/10.2139/ssrn.998019

Christian Müller-Kademann (Contact Author)

Jacobs University

Campus Ring 1
Research V, Room 40
Bremen, 28759
Germany

HOME PAGE: http://www.s-e-i.ch

Eva Maria Köberl

ETH Zürich - Swiss Institute for Business Cycle Research ( email )

Weinbergstrasse 35
CH-8092 Zurich
Switzerland
+41 44 632 50 90 (Phone)

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