This paper accounts for quality improvements and adjustment costs in all inputs to U.S. manufacturing production. Adjustment processes for non-capital inputs are slower than previously recognized. Annual adjustment percentages are: labor 77, capital 30, energy 20, and materials 21. Factor prices...

A growth model is developed in which finite-lived individuals invest in human capital, and investments have a positive external effect on the human capital of later cohorts. Heterogeneous labor is the only factor of production, and higher-quality labor produces higher-quality goods. Stationary...

This paper examines the construction equipment resale market to assess whether equipment produced by the world's largest manufacturer of construction machinery, Caterpillar, experienced lower product quality in facilities that underwent contract disputes during the 1990's. Analysis of auction...

Though built with increasingly precise microfoundations, modern optimizing sticky price models have displayed a chronic inability to generate large and persistent real responses to monetary shocks, as recently stressed by Chari, Kehoe and McGrattan [2000]. This is an ironic finding, since Taylor...

We present a theory of collusive pricing in markets subject to business cycle fluctuations. In the business cycle model that we adopt, market demand alternates stochastically between fast-growth (boom) and slow-growth (recession) phases. We provide a complete characterization of the...

During recessions, output prices tend to rise relative to wages and raw-materials prices. One explanation of this fact is that imperfectly competitive firms compete less aggressively during recessions - that is, markups of price over marginal cost are countercyclical. We present a model in which...

A model is estimated for oligopolistic industries producing multiple outputs in short-run equilibrium. Outputs are sold domestically and exported, while capital is treated as a quasi-fixed factor. The model is applied to the Canadian nonelectrical machinery, electrical products and chemical...

If changes in aggregate demand were an important source of macroeconomic fluctuations, real wages would be countercyclical unless markups of price over marginal cost were themselves countercyclical. We thus examine three theories of markup variation at cyclical frequencies. The first assumes...

I examine price markups in monopolisticly-competitive markets that experience fluctuations in demand because the economy experiences cyclical fluctuations in productivity. Markups depend positively on the average income of purchasers in the market. For a nondurable good average income of...

Hall has pointed out that, when there is perfect competition and price flexibility, labor hoarding alone will not induce the Solow residual measured using labor's share in revenues to be procyclical. We show that, even with perfect competition, a small amount of price rigidity - we assume firms...