This paper investigates the relative importance of cyclical fluctuations in labor and capital utilization, increasing returns to scale, and technology shocks as explanations for procyclical productivity. It exploits the intuition that materials inputs do not have variable utilization rates, and materials are likely to be used in fixed proportions with value added. Therefore, materials growth is a good measure of unobserved changes in capital and labor utilization. Using this measure shows that cyclical factor utilization is very important, returns to scale are about constant, and technology shocks are small and have low correlation with either output or hours growth.

Abstract In this paper, we study employment and capital adjustments using a panel of plants from Colombia. We allow for nonlinear adjustment of employment to reflect not only adjustment costs of labor but also adjustment costs of capital, and vice-versa. Using data from the Annual Manufacturing Survey, we generate measures of plant-level productivity, demand shocks, and cost shocks, and use them to measure desired factor demands. We then estimate adjustment hazards for capital and labor as a function of the gap between desired and actual levels of factors. Like for other countries, we find strong evidence of non-linear adjustments in employment and capital. In addition, we find that employment and capital adjustments reinforce each other, in that capital shortages reduce hiring and labor shortages reduce investment. Moreover, we assess how factor market reforms in the 1990s affected employment and capital adjustments in Colombia. We find that the reforms increased employment adjustments, especially on the job destruction margin, while reducing capital adjustments. Finally, we find that while completely eliminating frictions from factor adjustments would yield a dramatic increase in aggregate productivity through improved allocative efficiency, the market reforms introduced in Colombia generated positive but modest improvements on allocative efficiency.

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Abstract Recent years have seen large increases in the prices of houses, farm products, and oil, often with little clear connection to economic fundamentals. These price increases created plausibly exogenous shifts in demand for construction, farm, and mining machinery. This paper uses these demand shifts to estimate the elasticity of machinery supply. Graphical evidence, OLS, and IV estimates all indicate that the quantity of machinery supplied increased rapidly during the booms, with only modest increases in prices. Pooled sample estimates of the supply elasticity are around 5, far larger than the estimate of 1 from Goolsbee [1998]. Results thus suggest that public policies that stimulate investment demand will have only modest effects on the prices of investment goods. JEL Codes: H25, H32, E22.

This paper investigates industry-level effects of government purchases in order to shed light on the transmission mechanism for government spending on the aggregate economy. We begin by highlighting the different theoretical predictions concerning the effects of government spending on industry labor market equilibrium. We then create a panel data set that matches output and labor variables to shifts in industry-specific government demand. The empirical results indicate that increases in government demand raise output and hours, but have no effect on real product wages, even over a five-year horizon. Government demand also appears to raise productivity and markups when they are measured using gross output. These results are inconsistent with standard neoclassical and New Keynesian models of government spending. The views in this paper are those of the authors and do not necessarily represent the views or policies of the Board of Governors of the Federal Reserve System or its