The neoclassical effects of permanent technology shocks on employment is re-investigated. Contrary to Jordi Gali's (1999) assertion published in this Review, I show that standard neoclassical theory is fully capable of explaining the stylized fact that positive permanent technology shocks reduce...

A stylized fact associated with inventory behavior is that durable goods production and inventory investment are about 5 times more volatile than those of nondurable goods. This paper shows that the stockout-avoidance theory of inventories (Kahn, AER 1987) featuring demand uncertainty and...

When capacity utilization is allowed to vary, standard equilibrium theory predicts that demand shocks can generate not only closed-economy business cycles that are previously thought explainable only by technology shocks, but also international business cycles that are more consistent with the...

Careful examination of aggregate data from the U.S. and other OECD countries reveals that production and inventory behavior exhibit paradoxical features: 1) Inventory investment is strongly countercyclical at very high frequencies (e.g., 2-3 quarters per cycle); it is procyclical only at...

Using a rational expectations model of profit maximizing firms facing demand uncertainty, this paper derives a closed-form relationship between the optimal volume of labor hoarding and other important economic variables such as profit, expected demand, interest rate, inventory level, output...

Why is there inventory investment when its expected rate of return is strictly dominated by that of fixed-capital investment? Why is inventory investment procyclical at business-cycle frequencies but countercyclical at the very high frequencies (e.g., 2-3 quarters per cycle)? Why does the...

In this paper we show that the highly persistent inflation dynamics and its lead-lag relationship with output can be explained by a standard flexible price RBC model augmented with endogenous monetary policy. Endogenous monetary policy acting upon the illusion that price is sticky and money is...

The point of this paper is that if output is durable then optimal behavior of a supplier is characterized by production smoothing. Durability of goods (such as capital) has opposite effects on the supply of the goods. Higher durability on the one hand raises the variability of investment demand...

This paper provides new empirical evidence on and theoretical support for the close link between oil prices and aggregate macroeconomic performance in the 1970s. Although this link has been well documented in the empirical literature and is further confirmed in this paper, standard economic...

Despite the important role played by durable goods production and inventory investment in the business cycle, theoretical models featuring durable goods inventories are rarely available in the literature. This paper provides a simple dynamic optimization model of durable goods inventories and...