TY  - JOUR
AU  - Gilchrist,Simon
AU  - Williams,John C.
TI  - Putty-Clay and Investment:  A Business Cycle Analysis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6812
PY  - 1998
Y2  - November 1998
UR  - http://www.nber.org/papers/w6812
L1  - http://www.nber.org/papers/w6812.pdf
N1  - Author contact info:
Simon Gilchrist
Department of Economics
Boston University
270 Bay State Road
Boston, MA  02215
Tel: 617/353-6824
Fax: NA
E-Mail: sgilchri@bu.edu

John Williams
Federal Reserve Bank of San Francisco
Economic Research Department, MS 1130
101 Market St.
San Francisco, CA 94105
Tel: (415) 974-2240
Fax: (415) 974-2168
E-Mail: john.c.williams@sf.frb.org
AB  - This paper develops a dynamic stochastic general equilibrium model with putty-clay technology that incorporates embodied technology, investment irreversibility, and variable capacity utilization.  Low short-run capital-labor substitutability native to the putty-clay framework induces the putty-clay effect of a tight link between changes in capacity and movements in employment and output.  As a result, persistent shocks to technology or factor prices generate business cycle dynamics absent in standard neoclassical models, including a prolonged lump-shaped response of hours, persistence in output growth, and positive comovement in the forecastable components of output and hours.  Capacity constraints result in nonlinear aggregate production function that implies asymmetric responses to large shocks with recessions steeper and deeper than expansions. Minimum distance estimation of a two-sector model that nests putty-clay and neoclassical production technologies supports a significant role for putty-clay capital in explaining business-cycle and medium-run dynamics.
ER  -