Paper #702
- Title:
- Inflation and output dynamics with firm-owned capital
- Authors:
- Lutz Weinke and Tommy Sveen
- Date:
- July 2003
- Abstract:
- We model firm-owned capital in a stochastic dynamic New-Keynesian general equilibrium model ŕ la Calvo. We find that this structure implies equilibrium dynamics which are quantitatively di¤erent from the ones associated with a benchmark case where households accumulate capital and rent it to firms. Our findings therefore stress the importance of modeling an investment decision at the firm level–in addition to a meaningful price setting decision. Along the way we argue that the problem of modeling firm-owned capital with Calvo price-setting has not been solved in a correct way in the previous literature.
- Keywords:
- Monetary policy shocks, sticky prices, investments
- JEL codes:
- E22, E31
- Area of Research:
- Macroeconomics and International Economics
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