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Organizational dynamics and aggregate fluctuations: The role of financial relationships

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  • Otsu, Keisuke
  • Saito, Masashi

Abstract

This paper constructs an estimated dynamic stochastic general equilibrium model to study the role of labor reallocation between production and organizational tasks within a firm in movements in measured TFP in Japan. Allocating more labor to organizational tasks strengthens the financial relationship with financial intermediaries and helps firms to mitigate a widening in credit spread during financial difficulties. However, doing so reduces the labor allocated to production tasks and hence the measured TFP. Our quantitative analysis indicates that labor reallocation contributes to the observed procyclicality in measured TFP. We also find that this mechanism amplifies and propagates the effects of exogenous shocks on aggregate activity.

Suggested Citation

  • Otsu, Keisuke & Saito, Masashi, 2013. "Organizational dynamics and aggregate fluctuations: The role of financial relationships," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 3044-3058.
    • Handle: RePEc:eee:dyncon:v:37:y:2013:i:12:p:3044-3058
    DOI: 10.1016/j.jedc.2013.07.010
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    More about this item

    Keywords

    Labor reallocation; Financial relationship; Organizational capital; TFP; Aggregate fluctuations;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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