Title: Specific factors meet intermediate inputs
Description: "The recent years have  witnessed a surge of studies on the propagation mechanisms embedded in monetary  business cycle models with the hope of generating strategic complementarities  in pricing and delayed yet persistent effects of monetary shocks.  Two sources  of propagation that have been analyzed separately are specific factors and  intermediate inputs.  This paper presents a DSGE model featuring a CES  sub-function of these two forms of production inputs.  It derives a closed-form  equilibrium relation to decompose analytically the roles of these two sources  and their interactions in generating strategic complementarities, persistence,  and hump shapes.  It obtains a necessary and sufficient condition for the  response of real GDP to a monetary shock to be hump-shaped, and solve  analytically for the timing of the peak, both of which are shown to be  characterized by the degree of strategic complementarities and parameters  governing the process of money growth.  My analysis demonstrates that the  presence of intermediate inputs may weaken the impact of specific factors in  the propagation of monetary shocks.  Hence, this interaction may reduce the  possibility of a hump in the impulse-response function or may shift the timing  of the hump to an earlier date"--Federal Reserve Bank of Philadelphia web site.
Subjects: Business cycles, Econometric models, Intermediate goods, Mathematical models, Transmission mechanism (Monetary policy)