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Title

Endogenous capacity utilization and the asymmetric effects of monetary policy

AuthorsAlvarez Lois, Pedro Pablo
KeywordsCapacity Constraints
Limited Participation
Idiosyncratic Demand Uncertainty
Endogenous Mark-Up
Issue Date1-Nov-2000
SeriesUFAE and IAE Working Papers
469.00
AbstractThis paper investigates the role of variable capacity utilization as a source of asymmetries in the relationship between monetary policy and economic activity within a dynamic stochastic general equilibrium framework. The source of the asymmetry is directly linked to the bottlenecks and stock-outs that emerge from the existence of capacity constraints in the real side of the economy. Money has real effects due to the presence of rigidities in households' portfolio decisions in the form of a Luces-Fuerst 'limited participation' constraint. The model features variable capacity utilization rates across firms due to demand uncertainty. A monopolistic competitive structure provides additional effects through optimal mark-up changes. The overall message of this paper for monetary policy is that the same actions may have different effects depending on the capacity utilization rate of the economy.
URIhttp://hdl.handle.net/10261/1935
Appears in Collections:(IAE) Informes y documentos de trabajo
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