Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/267790 
Year of Publication: 
2022
Series/Report no.: 
ISER Discussion Paper No. 1178
Publisher: 
Osaka University, Institute of Social and Economic Research (ISER), Osaka
Abstract: 
We study business cycles with cyclical returns to scale. Contrary to tightly parameterized production functions (Cobb-Douglas and Constant Elasticity of Substitution), we empirically identify strong input complementarity that leads to procyclical returns to scale. We therefore propose a flexible translog production function that allows complementarity-induced procyclical returns to scale, and we integrate this function into a standard medium-scale dynamic stochastic general equilibrium (DSGE) model. The estimated model with the procyclical returns to scale (i) features procyclical price markups, (ii) better matches the cyclicality of factor shares, and (iii) decreases by nearly half the contribution of markup shocks to output fluctuations.
Subjects: 
Business cycles
Translog production function
DSGE model
Returns to scale
Markup
Markup shocks
JEL: 
C11
E23
E31
E32
Document Type: 
Working Paper

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