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Author:Thomas, Julia K. 

Journal Article
Rethinking the implications of monetary policy: How a transactions role for money transforms the predictions of our leading models

Over the past several decades, economists have devoted ever-growing effort to developing economic models to help us understand how changes in interest rates brought about by monetary policy actions affect the production and provision of goods and services in the economy. Although New Keynesian models have broad appeal in explaining how changes in the money stock can affect business activity, these models generate results that are inconsistent with what we know about how interest rates move with policy-induced changes in the money stock. In "Rethinking the Implications of Monetary Policy: ...
Business Review , Issue Q1 , Pages 19-28

Report
Nonconvex factor adjustments in equilibrium business cycle models: Do nonlinearities matter?

Recent empirical analysis has found nonlinearities to be important in understanding aggregated investment. Using an equilibrium business cycle model, we search for aggregate nonlinearities arising from the introduction of nonconvex capital adjustment costs. We find that, while such costs lead to nontrivial nonlinearities in aggregate investment demand, equilibrium investment is effectively unchanged. Our finding, based on a model in which aggregate fluctuations arise through exogenous changes in total factor productivity, is robust to the introduction of shocks to the relative price of ...
Staff Report , Paper 306

Report
Modeling inventories over the business cycle

We evaluate two leading models of aggregate fluctuations with inventories in general equilibrium: the (S,s) model and the stockout avoidance model. Each is judged by its ability to explain the observed magnitude of inventories in the U.S. economy, alongside other empirical regularities such as the procyclicality of inventory investment and its positive correlation with sales. We find that the (S,s) model is far more consistent with the behavior of aggregate inventories in the postwar U.S. when aggregate fluctuations arise from technology, rather than preference, shocks. The converse holds for ...
Staff Report , Paper 343

Report
Partial adjustment without apology

Many kinds of economic behavior involve discrete and occasional individual choices. Despite this, econometric partial adjustment models perform relatively well at the aggregate level. Analyzing the classic employment adjustment problem, we show how such microeconomic adjustment is well described by a new form of partial adjustment model that aggregates the actions of heterogeneous producers. ; We develop a model where individual establishments infrequently alter the sizes of their workforces because such adjustments involve fixed costs. In the market equilibrium, employment responses to ...
Staff Report , Paper 327

Working Paper
Modeling inventories over the business cycle.

We search for useful models of aggregate fluctuations with inventories. We focus exclusively on dynamic stochastic general equilibrium models that endogenously give rise to inventory investment and evaluate two leading candidates: the (S,s) model and the stockout avoidance model. Each model is examined under both technology shocks and preference shocks, and its performance gauged by its ability to explain the observed magnitude of inventories in the U.S. economy, alongside other empirical regularities, such as the procyclicality of inventory investment and its positive correlation with sales. ...
Working Papers , Paper 04-13

Working Paper
Inventories and the business cycle: an equilibrium analysis of (S,s) policies.

We develop an equilibrium business cycle model in which the producers of final goods pursue generalized (S,s) inventory policies with respect to intermediate goods, a consequence of nonconvex factor adjustment costs. Calibrating our model to reproduce the average inventory-to-sales ratio in postwar U.S. data, we find that it explains over half of the cyclical variability of inventory investment. Moreover, inventory accumulation is strongly procyclical, and production is more volatile than sales, as in the data. ; The comovement between inventory investment and final sales is often interpreted ...
Working Papers , Paper 04-11

Report
Idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics

We solve equilibrium models of lumpy investment wherein establishments face persistent shocks to common and plant-specific productivity. Nonconvex adjustment costs lead plants to pursue generalized (S, s) rules with respect to capital; thus, their investments are lumpy. In partial equilibrium, this yields substantial skewness and kurtosis in aggregate investment, though, with differences in plant-level productivity, these nonlinearities are far less pronounced. Moreover, nonconvex costs, like quadratic adjustment costs, increase the persistence of aggregate investment, yielding a better match ...
Staff Report , Paper 352

Report
Is lumpy investment relevant for the business cycle?

Previous research has suggested that discrete and occasional plant-level capital adjustments have significant aggregate implications. In particular, it has been argued that changes in plants? willingness to invest in response to aggregate shocks can at times generate large movements in total investment demand. In this study, I re-assess these predictions in a general equilibrium environment. Specifically, assuming nonconvex costs of capital adjustment, I derive generalized (S,s) adjustment rules yielding lumpy plant-level investment within an otherwise standard equilibrium business cycle ...
Staff Report , Paper 302

Working Paper
Idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics

The authors study a model of lumpy investment wherein establishments face persistent shocks to common and plant-specific productivity, and nonconvex adjustment costs lead them to pursue generalized (S,s) investment rules. They allow persistent heterogeneity in both capital and total factor productivity alongside low-level investments exempt from adjustment costs to develop the first model consistent with the cross-sectional distribution of establishment investment rates. Examining the implications of lumpy investment for aggregate dynamics in this setting, the authors find that they remain ...
Working Papers , Paper 07-24

Working Paper
Inventories and the business cycle: an equilibrium analysis of (S,s) policies.

The authors develop an equilibrium business cycle model in which final goods producers pursue generalized (S,s) inventory policies with respect to intermediate goods, a consequence of nonconvex factor adjustment costs. Calibrating their model to reproduce the average inventory-to-sales ratio in postwar U.S. data, the authors find that it explains half of the cyclical variability of inventory investment. Moreover, inventory accumulation is strongly procyclical, and production is more volatile than sales, as in the data. The comovement between inventory investment and final sales is often ...
Working Papers , Paper 02-20

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