Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/232470 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 8873
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
How do firms adjust their output, inventories, employment and capital in response to demandsideshocks? To understand this, we estimate a reduced-form model using firm-level panel dataand we construct a theoretical model that can match the estimated impulse-response functions.A combination of convex adjustment costs and implementation lags explains input adjustmentvery well. Although inputs adjust slowly, production responds quickly to the demand shock andthis adjustment is explained by a combination of increasing returns and increased utilization ofthe production factors. To avoid stock-outs, firms increase their inventories when demandincreases.
Subjects: 
production function
productivity
Solow residual
labor hoarding
effort
organizational capital
capacity
returns to scale
markup
inventory investment
JEL: 
E22
E23
E24
E32
Document Type: 
Working Paper
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