Abstract
It is well known that the standard real business cycle (RBC) model with energy cannot generate the large drops in value added following the energy price increases in the 1970s, although previous empirical studies have confirmed the important role of energy prices. In this paper, endogenous capacity utilization is incorporated into an otherwise standard RBC model as an amplification mechanism. The simulated results show that the endogenous capacity utilization successfully generates the large contraction in value added observed in the Japanese data. It is also shown that the introduction of capacity utilization produces more realistic dynamics of total factor productivity.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.