Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/176116 
Year of Publication: 
2015
Series/Report no.: 
Texto para discussão No. 633
Publisher: 
Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio), Departamento de Economia, Rio de Janeiro
Abstract: 
We develop a multisector model in which capital and labor are free to move across firms within each sector, but cannot move across sectors. To isolate the role of sectoral specificity, we compare our model with otherwise identical multisector economies with either economy-wide or firm-specific factor markets. Sectoral factor specificity generates within-sector strategic substitutability and tends to induce across-sector strategic complementarity in price setting. Our model can produce either more or less monetary non-neutrality than those other two models, depending on parameterization and the distribution of price rigidity across sectors. Under the empirical distribution for the U.S., our model behaves similarly to an economy with firm-specific factors in the short-run, and later on approaches the dynamics of the model with economy-wide factor markets. This is consistent with the idea that factor price equalization might take place gradually over time, so that firm-specificity may serve as a reasonable short-run approximation, whereas economy-wide markets are likely a better description of how factors of production are allocated in the longer run.
Subjects: 
factor specificity
multisector model
heterogeneity
monetary non-neutrality
JEL: 
E22
J6
E12
Document Type: 
Working Paper

Files in This Item:
File
Size
633.42 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.