Can capacity constraints explain asymmetries of the business cycle?

Malte Knüppel

In this paper, we investigate the ability of a modified RBC model to reproduce asymmetries observed for macroeconomic variables over the business cycle. In order 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 due to the assumption of kinked marginal costs of utilization, where the kink is located at a utilization rate of 100 percent. We find that a model with a suitably calibrated cost function reproduces the empirical coefficients of skewness remarkably well.

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Year of publication:	15 Febr. 2008
Other Persons:	Knüppel, Malte (contributor)
Publisher:	Frankfurt, M. : Dt. Bundesbank
Subject:	Real-Business-Cycle-Theorie \| Real business cycle model \| Produktionspotenzial \| Potential output \| Engpass \| Bottleneck \| Theorie \| Theory \| USA \| United States