Abstract :
In mostmanufacturingindustriesplant-leveloutputisadjustedalongthreemarginsof
capacityutilization:shiftwork,weekendwork,andclosingtemporarilydown.Dueto
thediscreteandlumpynatureofthesemargins,onlyafractionofplantsadjustoutput
in responsetoshocks.Inabusinesscyclemodelcalibratedtoestablishment-level
observations,thesenonconvexitiesmakeaggregateoutputlessvolatilethanwhen
plantscanadjustsmoothly.Further,themassofadjustingplantsislargerindownturns
thaninupturns,leadingtocounter-cyclicalvolatilityofaggregateoutputandgovern-
mentpolicybeingslightlymoreeffectiveinrecessionsthaninexpansions
