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Investment-specific technology shocks and consumption

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  • Francesco Furlanetto

    ()
    (Norges Bank (Central Bank of Norway))

  • Martin Seneca

    (Norges Bank (Central Bank of Norway))

Abstract

Current business cycle models systematically underestimate the correlation between consumption and investment. One reason for this failure is that a positive investment-specific technology shock generally induces a negative consumption response. The objective of this paper is to investigate whether positive consumption responses to investment-specific technology shocks can be obtained in a modern business cycle model. We find that the answer to this question is yes. With a combination of nominal rigidities and non-separable preferences, the consumption response is positive for general parameterisations of the model.

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Bibliographic Info

Paper provided by Norges Bank in its series Working Paper with number 2010/30.

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Length: 46 pages
Date of creation: 29 Dec 2010
Date of revision:
Handle: RePEc:bno:worpap:2010_30

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Keywords: Investment-specific technology shocks; Consumption; GHH preferences; Nominal rigidities; Comovement.;

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References

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  1. Justiniano, Alejandro & Primiceri, Giorgio E. & Tambalotti, Andrea, 2008. "Investment Shocks and Business Cycles," CEPR Discussion Papers 6739, C.E.P.R. Discussion Papers.
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  12. Barro, Robert J & King, Robert G, 1984. "Time-separable Preferences and Intertemporal-Substitution Models of Business Cycles," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 817-39, November.
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  1. The investment-consumption correlation
    by Economic Logician in Economic Logic on 2011-02-16 15:17:00
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