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Author:Bils, Mark 

What inventory behavior tells us about business cycles

We argue that the behavior of manufacturing inventories provides evidence against models of business cycle fluctuations based on productivity shocks, increasing returns to scale, or favorable externalities, whereas it is consistent with models with short-run diminishing returns. Finished goods inventories move proportionally much less than sales or production over the business cycle, which we show implies procyclical marginal cost and countercyclical price markups. Obvious measures for marginal cost do not show high marginal cost near peaks, as required to rationalize the inventory behavior, ...
Research Paper , Paper 9817

What inventory behavior tells us about business cycles

Manufacturers' finished goods inventories are less cyclical than shipments. This requires marginal cost to be more procyclical than is conventionally measured. In this paper, alternative marginal cost measures for six manufacturing industries are constructed. These measures, which attribute high-frequency productivity shocks to procyclical work effort, are more successful in accounting for inventory behavior. Evidence is also provided that the short-run slope of marginal cost arising from convexity of the production function is close to zero for five of the six industries. The paper concludes ...
Staff Reports , Paper 92

Appendix: Resurrecting the Role of the Product Market Wedge in Recessions

Staff Report , Paper 517

Resurrecting the Role of the Product Market Wedge in Recessions

Employment and hours appear far more cyclical than dictated by the behavior of productivity and consumption. This puzzle has been called ?the labor wedge? ? a cyclical intratemporal wedge between the marginal product of labor and the marginal rate of substitution of consumption for leisure. The intratemporal wedge can be broken into a product market wedge (price markup) and a labor market wedge (wage markup). Based on the wages of employees, the literature has attributed the intratemporal wedge almost entirely to labor market distortions. Because employee wages may be smoothed versions of the ...
Staff Report , Paper 516

Discussion Paper
Cyclical factor utilization

We introduce procyclical labor and capital utilization, as well as costs of rapidly increasing employment, into a business-cycle model. Plausible variations in factor utilization enable us to explain observed variability of real GNP with considerably smaller economy-wide disturbances. The costs of adjustment create very interesting and realistic lead and lag relationships: Employment does not peak until a full quarter after output; workweeks, effort, capital utilization, and productivity all sharply lead the business cycle.
Discussion Paper / Institute for Empirical Macroeconomics , Paper 79

Working Paper
Reset price inflation and the impact of monetary policy shocks

A standard state-dependent pricing model implies very limited scope for using active monetary policy to stabilize real activity. Two modeling strategies which expand the role of monetary policy are time-dependent pricing and strategic complementarities between price-setting firms. These mechanisms have telltale implications for the persistence and volatility of "reset price inflation." Reset price inflation is the rate of change of all desired prices (including for goods that have not changed price in the current period). Using the micro data underpinning the CPI, we construct an ...
Finance and Economics Discussion Series , Paper 2009-16

Conference Paper
Indexation and contract length in unionized U.S. manufacturing


Journal Article
Sticky prices and monetary policy shocks

Models with sticky prices predict that monetary policy changes will affect relative prices and relative quantities in the short run because some prices are more flexible than others. In U.S. micro data, the degree of price stickiness differs dramatically across consumption categories. This study exploits that diversity to ask whether popular measures of monetary shocks (for example, innovations in the federal funds rate) have the predicted effects. The study finds that they do not. Short-run responses of relative prices have the wrong sign. And monetary policy shocks seem to have persistent ...
Quarterly Review , Volume 27 , Issue Win , Pages 2-9


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