A Monetary Model of Factor Utilisation

Bank of England Working Paper No. 154

41 Pages Posted: 25 Jun 2002

See all articles by Katharine S. Neiss

Katharine S. Neiss

Bank of England - Monetary Analysis

Evi Pappa

London School of Economics & Political Science (LSE); Autonomous University of Barcelona - Department of Economics and Economic History

Date Written: April 2002

Abstract

The propagation mechanism of monetary shocks in an otherwise standard sticky-price model is examined, modified to incorporate factor hoarding in the form of variable capital utilisation rates and labour effort. In contrast to previous studies, it is found that real effects of monetary shocks can be generated at relatively low degrees of nominal rigidity. Factor hoarding enriches the propagation mechanism by flattening the marginal cost responses to monetary shocks. The assumption of labour hoarding is crucial for generating persistence, while the assumption of variable capital utilisation allows the generation of realistic investment volatility, without having to introduce capital adjustment costs.

JEL Classification: E51, E22

Suggested Citation

Neiss, Katharine S. and Pappa, Paraskevi (Evi), A Monetary Model of Factor Utilisation (April 2002). Bank of England Working Paper No. 154, Available at SSRN: https://ssrn.com/abstract=315179 or http://dx.doi.org/10.2139/ssrn.315179

Katharine S. Neiss (Contact Author)

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom
+44 20 7601 4588 (Phone)
+44 20 7601 5018 (Fax)

Paraskevi (Evi) Pappa

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7584 (Phone)
+44 20 7831 1840 (Fax)

Autonomous University of Barcelona - Department of Economics and Economic History ( email )

Edifici B - Campus Bellaterra
Barcelona, 08193
Spain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
76
Abstract Views
1,227
rank
418,316
PlumX Metrics