Real Business Cycle under the Conditions of Imperfectly Working Market of Capital Goods

In our paper we deal with a question of how imperfect flexibility of interest rate and prices of capital goods on market of capital influences welfare if an economy is submitted to technology shock. By the use of basic real-business-cycle model we explain how positive technology shocks may lower welfare. We identify factors influencing the need of flexible interest rate and flexible prices of capital goads. Our model predicts significant influence of elasticity of substitution of factors of production, of persistency and of intensity of technology shocks on welfare under the conditions of imperfectly working capital market. Efficient capital market becomes more important with a slower rate of operation of diminishing,marginal product of capital, lower persistency and higher intensity of technology shocks.