Fixed adjustment costs and aggregate fluctuations

Michael Elsby, Ryan Michaels

Research output: Contribution to conferencePaperpeer-review

Abstract

This paper studies the analytics of a canonical model of lumpy microeconomic adjustment. We provide a novel characterization of the implied aggregate dynamics. In general, the distribution of firm outcomes follows a simple and intuitive law of motion that links aggregate outcomes to rates of adjustment. Analytical approximations reveal, however, that the aggregate dynamics are approximately invariant to a relevant range of adjustment costs. This neutrality is an aggregation result that emerges from a symmetry property in the distributional dynamics, independent of market equilibrium considerations. Quantitative illustrations conform these results for parameterizations used in the employment and price adjustment literatures
Original languageEnglish
Number of pages50
Publication statusPublished - 23 Dec 2014
EventSociety for Economic Dynamics - University of Cyprus, Limassol, Cyprus
Duration: 22 Jun 201224 Dec 2012
https://www.economicdynamics.org/sed2012/

Conference

ConferenceSociety for Economic Dynamics
Abbreviated titleSED
Country/TerritoryCyprus
CityLimassol
Period22/06/1224/12/12
Internet address

Keywords

  • lumpy microeconomic adjustment
  • Ss model
  • cross-sectional dynamics
  • aggregate employment dynamics.

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