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.