Putty‐Clay and Investment: A Business Cycle Analysis

By Simon Gilchrist, John C. Williams. Journal of Political Economy, 2000

196 citations recorded by the source corpus.

This paper develops a general equilibrium model with putty‐clay technology, investment irreversibility, and variable capacity utilization. Low short‐run capital‐labor substitutability induces the putty‐clay effect of a tight link between changes in capacity and movements in employment and output. Permanent shocks to technology or factor prices generate a hump‐shaped response of hours, persistence in output growth, and positive comovement in the forecastable components of output and hours. Capacity constraints result in asymmetric responses to large shocks with recessions deeper than expansions. Estimation of a two‐sector model supports a significant role for putty‐clay capital in explaining business cycle and medium‐run dynamics.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/b34ba96bdca48e15504fea0f74bca8a777617733

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

Citations in the corpus

The Brevity and Violence of Contractions and Expansions (2008, unknown): “Gilchrist and Williams (2000) and Hansen and Prescott (2005) argue that during booms …rms hit capacity constraints so expanding production requires expending resources to set up more plants.”
Capacity constraints, asymmetries, and the business cycle (2005, background): “The existing literature studying the effects of capacity constraints and idle capital in equilibrium business cycle models include Cooley, Hansen and Prescott (1995) and Gilchrist and Williams (2000).(3) Cooley, Hansen and Prescott study an economy in which there is idle capital in all states.”
Redistributive shocks and productivity shocks (2010, background): “Gomme and Greenwood (1995) study a complete markets economy with workers and entrepreneurs that insure against business cycle income losses through two different financial arrangements: first, workers’ Arrow securities are directly included in the wage bill, and second, workers buy bonds issued by t”
Growth, capital shares, and a new perspective on production functions (2003, background): “A class of models that meets the first requirement are the putty-clay vintage capital models of Caballero and Hammour (1998) and Gilchrist and Williams (2000).”
The growth potential of startups over the business cycle (2014, background): “In addition, startup composition is affected directly by a shock to the distribution of business opportunities across firm types, resembling shocks in models of vintage technologies (see e.g. Campbell, 1998; Gilchrist and Williams, 2000).”