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Investment shocks and macroeconomic co-movement

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  • 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/Published/Papers/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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Keywords: Investment shocks; consumption; rule-of-thumb consumers; nominal rigidities; co-movement;

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References

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Citations

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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 & Seneca, Martin, 2014. "Investment shocks and consumption," European Economic Review, Elsevier, vol. 66(C), pages 111-126.

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