Fixed adjustment costs and aggregate fluctuations

Michael Elsby, Ryan Michaels

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

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 confirm these results for parameterizations used in the employment and price adjustment literatures.
Original languageEnglish
Pages (from-to)128-147
JournalJournal of Monetary Economics
Early online date19 Jul 2018
Publication statusPublished - Jan 2019

Keywords / Materials (for Non-textual outputs)

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


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