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Figure 1: Model and Data Impulse Responses

inflation (APR)

real wage

0.4

0.2
0.1

0.2

0
0
-0.1
-0.2
-0.4

-0.2
5

10

15

20

-0.3

interest rate (APR)

0.5

0.5

-0.5

-1

10

15

20

-0.5

investment
0.4

0.2

-1

-0.2

10

15

20

-0.4

profits
4

-2

-2

10

20

10

15

20

10

15

20

15

20

15

20

price of capital

-4

15

consumption

-2

10
output

15

20

-4

productivity

10
dm

0.4

0.3
0.2

0.2

0.1
0
0
-0.2
-0.4

-0.1
5

10

15

20

-0.2

10

Figure 2: Price Level, Output and Money Stock

0.6

0.5

Output

0.4

Percent Deviation From Unshocked Path

Money Stock

0.3

0.2

0.1

-0.1

-0.2

Price Level

10
Quarters

12

14

16

18

20

Flexible Wages

0.5

-0.5
0.5

10

15

20

0
-0.5

output
investment
consumption

Flexible Prices,

0.5

-1
1

10

15

20

10

15

20

-2

10

15

20

0.5

10

15

20

profits

10

15

20

-0.5
1

-1
1

-1
2

-2
0.5

-0.5
0.5

10

15

20

-0.5
5

10

15

20

10

15

20

-5

0.5

10

15

20

-0.5
1

10

15

20

10

15

20

10

15

20

10

15

20

10

15

20

10

15

20

10

15

20

0
5

10

15

20

-1
1
0

10

15

20

-1
2
0

10

15

20

-2
0.5
0

10

15

20

-0.5
0.5
0

10

15

20

0
5

-0.5

0
-5

20

0
-0.5

15

0
-0.5

10

0.5

0.5

-0.5

-1

productivity

AR(1) Money Growth,

0.5

interest rate (apr)

real wage

inflation (apr)

Figure 3:

-0.5
5
0

10

15

20

-5

Textbook Growth Model Specification,

No Habit Persistence

0.5

0.5

-0.5
0.5

10

15

20

0
-0.5

output
investment
consumption

No Investment Adjustment Costs,

0.5

-1
1

10

15

20

10

15

20

-2

10

15

20

0.5

10

15

20

profits

10

15

20

-0.5
1

-1
1

-1
2

-2
0.5

-0.5
0.5

10

15

20

-0.5
5

10

15

20

10

15

20

-5

0.5

10

15

20

-0.5
1

10

15

20

-1
1

10

15

20

10

15

20

-1
2

10

15

20

10

15

20

-2
0.5

10

15

20

10

15

20

-0.5
0.5

10

15

20

10

15

20

-0.5
5

10

15

20

10

15

20

-5

20

-0.5
1

10

15

20

-1
1

10

15

20

-1
2

10

15

20

-2
0.5

10

15

20

-0.5
0.5

10

15

20

10

15

20

10

15

20

0
5

10

15

20

0
5

15

0
5

10

0
5

0
5

0.5

0
5

-0.5

0
5

-0.5

0
-5

20

0
-0.5

15

0
-0.5

10

0.5

0.5

-0.5

-1

productivity

No Captital Utilization,

0.5

interest rate (apr)

real wage

inflation (apr)

Figure 4:

-0.5
5
0

10

15

20

-5

lambdaf = 1.05,

0.5

-0.5
0.5

-0.5

output
investment
consumption

10

12

14

16

18

20

-1
1

10

12

14

16

18

20

10

12

14

16

18

20

-2

10

12

14

16

18

20

0.5

10

12

14

16

18

20

profits

10

12

14

16

18

20

10

12

14

16

18

20

-0.5
1

10

12

14

16

18

20

-1
1

10

12

14

16

18

20

-1
2

10

12

14

16

18

20

-2
0.5

10

12

14

16

18

20

-0.5
0.5

10

12

14

16

18

20

10

12

14

16

18

20

10

12

14

16

18

20

0
2

10

12

14

16

18

20

0
-5

0
-0.5

0
-0.5

0.5

0.5

-0.5

-1

productivity

static indexation (optimized)

0.5

interest rate (apr)

real wage

inflation (apr)

Figure 5:

-0.5
5
0

10

12

14

16

18

20

-5