Year: 2006
Type: article
Abstract: Econometric partial adjustment models perform relatively well at the aggregate level; however, many kinds of microeconomic behavior involve discrete and occasional choices. Analyzing the classic employment adjustment problem, we show how a generalized partial adjustment model tractably accommodates both observations by aggregating the actions of heterogeneous producers facing fixed adjustment costs. Aggregate disturbances cause changes in establishment‐level target employment and in the measure of establishments actively adjusting to their target, whereas aggregate responses exhibit partial adjustment. Our framework also can be applied in general equilibrium settings with persistent idiosyncratic shocks without forfeiting the convenient use of linear solution methods.
Source: International Economic Review
Authors: Robert G. King, Julia K. Thomas
Language: English
Topic: Economic theories and models
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2011943763