Fixed adjustment costs and aggregate fluctuations

Michael Elsby; Ryan Michaels

Fixed adjustment costs and aggregate fluctuations

School of Economics

Research output: Contribution to conference › Paper › peer-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 language	English
Number of pages	50
Publication status	Published - 23 Dec 2014
Event	Society for Economic Dynamics - University of Cyprus, Limassol, Cyprus Duration: 22 Jun 2012 → 24 Dec 2012 https://www.economicdynamics.org/sed2012/

Conference

Conference	Society for Economic Dynamics
Abbreviated title	SED
Country/Territory	Cyprus
City	Limassol
Period	22/06/12 → 24/12/12
Internet address	https://www.economicdynamics.org/sed2012/

Keywords / Materials (for Non-textual outputs)

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

Access to Document

https://economicdynamics.org/meetpapers/2012/paper_679.pdf

Cite this

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title = "Fixed adjustment costs and aggregate fluctuations",

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AB - 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

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KW - Ss model

KW - cross-sectional dynamics

KW - aggregate employment dynamics.

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M3 - Paper

T2 - Society for Economic Dynamics

Y2 - 22 June 2012 through 24 December 2012

ER -

Fixed adjustment costs and aggregate fluctuations

Abstract

Conference

Keywords / Materials (for Non-textual outputs)

Access to Document

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MacCaLM: Labour and Credit Market Foundations of the Macroeconomy