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Investment shocks and macroeconomic co-movement

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Author Info

  • Francesco Furlanetto

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

  • Gisle J. Natvik

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

  • Martin Seneca

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

Abstract

Recent studies find that shocks to the marginal efficiency of investment are a main driver of business cycles. Yet, they struggle to explain why consumption co-moves with real variables such as investment and output, which is a typical feature of an empirically recognizable business cycle. In this paper we show that within a conventional business cycle model, rule-of-thumb consumption provides a straightforward explanation of macroeconomic co-movement after a shock to the marginal efficiency of investment.

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File URL: http://www.norges-bank.no/en/about/published/publications/working-papers/2011/wp-201114/
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Bibliographic Info

Paper provided by Norges Bank in its series Working Paper with number 2011/14.

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Length: 18 pages
Date of creation: 31 Aug 2011
Date of revision:
Handle: RePEc:bno:worpap:2011_14

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Related research

Keywords: Investment shocks; consumption; rule-of-thumb consumers; nominal rigidities; co-movement;

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Cited by:
  1. Fransesco Furlanetto & Martin Seneca, 2010. "New Perspectives on Depreciation Shocks as a Source of Business Cycle Fluctuations," Economics wp48, Department of Economics, Central bank of Iceland.
  2. Furlanetto, Francesco, 2011. "Fiscal stimulus and the role of wage rigidity," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 512-527, April.

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