- (2000). A large number of competitive “employment agencies†aggregate this specialized labor into a homogenous labor input which is sold to intermediate goods producers in a competitive market. Aggregation is done according to the following function, Lt = [ ∫ 1 0 Lt(j) 1 1+λw,t dj ]1+λw,t . The desired markup of wages over the household’s marginal rate of substitution (or wage mark-up), λw,t, follows the exogenous stochastic process, log(1 + λw,t) = (1 − Ïw) log(1 + λw) + Ïw log(1 + λw,t−1) + εw,t, where Ïw ∈ (0, 1) and εw,t is i.i.d. N(0, σ2 λw ). Proï¬t maximization by the perfectly competitive employment agencies implies the labor demand function, Lt(j) = (Wt(j) Wt )− 1+λw,t λw,t Lt, (C.1) where Wt(j) is the wage received from employment agencies by the supplier of labor of type j, while the wage paid by intermediate ï¬rms for the homogenous labor input is, Wt = [ ∫ 1 0 Wt(j) 1 λw,t dj ]λw,t .
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- Following Erceg et al. (2000), in each period, a fraction ξw of the households cannot freely adjust its wage but follows the indexation rule, Wt+1(j) = Wt(j) ( πc,te zt+ ac 1−ai vt )ιw ( πce ga+ ac 1−ai gv )1−ιw . The remaining fraction of households, (1 − ξw), chooses an optimal wage, Wt(j), by maximizing,38 Et { ∞∑ s=0 ξs wβs [ − bt+sφ Lt+s(j)1+ν 1 + ν + Λt+sWt(j)Lt+s(j) ]} , subject to the labor demand function (C.1). The aggregate wage evolves according to, Wt = { (1 − ξw)( ˜Wt) 1 λw + ξw [( πce ga+ ac 1−ai gv )1−ιw ( πc,t−1e zt−1+ ac 1−ai vt−1 )ιw Wt−1 ] 1 λw }λw , where ˜Wt is the optimally chosen wage.
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- I-sector price markup Beta 0.60 0.20 0.8871 0.8442 0.9337 Ïλw Wage markup Beta 0.60 0.20 0.0523 0.0087 0.0945 ÏξK ,C C-sector capital quality Beta 0.60 0.20 0.8437 0.8133 0.8765 ÏξK ,I I-sector capital quality Beta 0.60 0.20 0.0862 0.0215 0.1471 Shocks: Volatilities σz C-sector TFP Inv Gamma 0.50 2 0.1721 0.1288 0.2147 σ4 z C-sector TFP. 4Q ahead news Inv Gamma 0.5/ √ 2 2 0.1174 0.0839 0.1521 σ8 z C-sector TFP. 8Q ahead news Inv Gamma 0.5/ √ 2 2 0.2014 0.1544 0.2470 σv I-sector TFP Inv Gamma 0.50 2 1.8718 1.5932 2.1517 σ4 v I-sector TFP. 4Q ahead news Inv Gamma 0.5/ √ 2 2 0.2959 0.1090 0.4712 σ8 v I-sector TFP. 8Q ahead news Inv Gamma 0.5/ √ 2 2 0.7001 0.5282 0.8661 σb Preference Inv Gamma 0.10 2 1.4524 1.1644 1.7339 σe GDP measurement error Inv Gamma 0.50 2 0.5102 0.4357 0.5794 σmp Monetary policy Inv Gamma 0.10 2 0.1204 0.1023 0.1386 σλC p C-sector price markup Inv Gamma 0.10 2 0.6045 0.5184 0.6839 σλI p
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- I-sector price markup Inv Gamma 0.10 2 0.2282 0.1647 0.2863 σλw Wage markup Inv Gamma 0.10 2 0.3689 0.3100 0.4274 σξK ,C C-sector capital quality Inv Gamma 0.50 2 0.3118 0.2237 0.3948 σξK ,I I-sector capital quality Inv Gamma 0.50 2 2.4029 2.0458 2.7600 Notes. The posterior distribution of parameters is evaluated numerically using the random walk Metropolis-Hastings algorithm. We simulate the posterior using a sample of 500,000 draws and discard the ï¬rst 100,000 of the draws.
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- Let δx ∈ (0, 1) denote the depreciation rate of capital and Kx,t−1 the cap38 All households that can reoptimize will choose the same wage. The probability to be able to adjust the wage, (1 − ξw), can be seen as a reduced-form representation of wage rigidities with a broader microfoundation; for example quadratic adjustment costs (Calvo (1983)), information frictions (Mankiw, N. Gregory and Reis, Ricardo (2002)) and contract costs (Caplin and Leahy (1997)). ital stock available at the beginning of period t in sector x = C, I. Then setting Ox,t = (1 − δ)ξK x,t Kx,t−1 implies the available (sector speciï¬c) capital stock in sector x, evolves according to, Kx,t = (1 − δx)ξK x,t Kx,t−1 + ( 1 − S ( Ix,t Ix,t−1 )) Ix,t, x = C, I, (C.2) as described in the main text.
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- The only industry which changes classiï¬cation (from consumption to investment) during the sample is “information†which for the majority of the sample can be classiï¬ed as investment and we classify it as such. 37 We use the 2005 NAICS codes. The investment sector is deï¬ned to consist of companies in mining, utilities, transportation and warehousing, information, manufacturing, construction and wholesale trade industries (NAICS codes 21 22 23 31 32 33 42 48 49 51 (except 491)). The consumption sector consists of companies in retail trade, ï¬nance, insurance, real estate, rental and leasing, professional and business services, educational services, health care and social assistance,arts, entertainment, recreation, accommodation and food services and other services except government (NAICS codes 6 7 11 44 45 52 53 54 55 56 81).
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