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CAN CAPACITY CONSTRAINTS EXPLAIN ASYMMETRIES OF THE BUSINESS CYCLE?

Published online by Cambridge University Press:  07 March 2013

Malte Knüppel
Malte Knüppel*
Affiliation:
Deutsche Bundesbank
*
Address correspondence to: Malte Knüppel, Deutsche Bundesbank, Wilhelm-Epstein-Straße 14, D-60431 Frankfurt am Main, Germany; e-mail: malte.knueppel@bundesbank.de.
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Abstract

In this paper, we investigate the ability of a modified real business cycle (RBC) model to reproduce asymmetries observed for macroeconomic variables over the business cycle. To replicate the empirical skewness of major U.S. macroeconomic variables, we introduce a capacity constraint into an otherwise prototypical RBC model. This constraint emerges because of the assumption of kinked marginal costs of utilization, where the kink is located at a utilization rate of 100%. We find that a model with a suitably calibrated cost function reproduces the empirical coefficients of skewness remarkably well.

Keywords

Capacity UtilizationSkewnessRBC Model

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Type
Articles
Information
Macroeconomic Dynamics , Volume 18 , Issue 1 , January 2014 , pp. 65 - 92
Copyright
Copyright © Cambridge University Press 2013 

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