DYNAMIC COMPLEMENTARITIES - A QUANTITATIVE-ANALYSIS

This paper considers the importance of dynamic complementarities as an endogenous source of propagation in a dynamic stochastic economy. Dyn amic complementarities link the stocks of human and organizational cap ital, which are influenced by past levels of economic activity, to cur rent levels of productivity. We supplement an otherwise standard dynam ic business cycle model with both contemporaneous and dynamic compleme ntarities. The model is calibrated using estimates of these effects fr om both micro and aggregate data. Our quantitative analysis identifies empirically relevant dynamic complementarities as a source of propaga tion for both technology and taste shocks.