Factor-Hoarding and the Propagation of Business-Cycle Shocks

Craig Burnside*, Martin S Eichenbaum

*Corresponding author for this work

Research output: Contribution to journalArticle

171 Scopus citations

Abstract

This paper analyzes the role of variable capital-utilization rates in propagating shocks over the business cycle. The model on which our analysis is based treats variable capital-utilization rates as a form of factor-hoarding. We argue that variable capital-utilization rates are a quantitatively important source of propagation to business-cycle shocks. With this additional source of propagation, the volatility of exogenous technology shocks needed to explain the observed variability in aggregate U.S. output is significantly reduced relative to standard real-business-cycle models.

Original languageEnglish (US)
Pages (from-to)1154-1174
Number of pages21
JournalAmerican Economic Review
Volume86
Issue number5
StatePublished - Dec 1 1996

ASJC Scopus subject areas

  • Economics and Econometrics

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