Firm-specific capital, inflation persistence and the sources of business cycles

TY - JOUR

T1 - Firm-specific capital, inflation persistence and the sources of business cycles

AU - Rodrigues Madeira, Joao Antonio

N1 - (c) 2014 Elsevier B.V. All rights reserved. This is an author produced version of a paper published in European Economic Review. Uploaded in accordance with the publisher's self-archiving policy.

PY - 2015/2

Y1 - 2015/2

N2 - This paper estimates a firm-specific capital DSGE model. Firm-specific capital improves the fit of DSGE models to the data (as shown by a large increase in the value of the log marginal likelihood). This results from a lower implied estimate of the NKPC slope for a given degree of price stickiness. Firm-specific capital leads to a better fit to the volatilities of macro variables and a greater persistence of inflation. It is also shown that firm-specific capital reduces the dependence of New Keynesian models on price markup shocks and that it increases the persistence of output to monetary shocks.

AB - This paper estimates a firm-specific capital DSGE model. Firm-specific capital improves the fit of DSGE models to the data (as shown by a large increase in the value of the log marginal likelihood). This results from a lower implied estimate of the NKPC slope for a given degree of price stickiness. Firm-specific capital leads to a better fit to the volatilities of macro variables and a greater persistence of inflation. It is also shown that firm-specific capital reduces the dependence of New Keynesian models on price markup shocks and that it increases the persistence of output to monetary shocks.

KW - New Keynesian models; Sticky prices; DSGE; Business cycles; Firm-specific capital; Bayesian estimation

U2 - 10.1016/j.euroecorev.2014.12.004

DO - 10.1016/j.euroecorev.2014.12.004

M3 - Article

SN - 0014-2921

VL - 74

SP - 229

EP - 243

JO - European economic review

JF - European economic review

ER -