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Interpreting investment-specific technology shocks

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  • Luca Guerrieri
  • Dale Henderson
  • Jinill Kim

Abstract

Investment-specific technology (IST) shocks are often interpreted as multi-factor productivity (MFP) shocks in a separate investment-producing sector. However, this interpretation is strictly valid only when some stringent conditions are satisfied. Some of these conditions are at odds with the data. Using a two-sector model whose calibration is based on the U.S. Input-Output Tables, we consider the implications of relaxing several of these conditions. In particular, we show how the effects of IST shocks in a one-sector model differ from those of MFP shocks to an investment-producing sector of a two-sector model. Importantly, with a menu of shocks drawn from recent empirical studies, MFP shocks induce a positive short-run correlation between consumption and investment consistent with U.S. data, while IST shocks do not.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1000.

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Date of creation: 2010
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Handle: RePEc:fip:fedgif:1000

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Related research

Keywords: Business cycles ; Technology - Economic aspects;

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Cited by:
  1. Alejandro Justiniano & Giorgio Primiceri & Andrea Tambalotti, 2011. "Investment Shocks and the Relative Price of Investment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 101-121, January.
  2. Andrea Raffo, 2008. "Technology Shocks: Novel Implications for International Business Cycles," 2008 Meeting Papers 511, Society for Economic Dynamics.
  3. Jacob, Punnoose & Peersman, Gert, 2013. "Dissecting the dynamics of the US trade balance in an estimated equilibrium model," Journal of International Economics, Elsevier, vol. 90(2), pages 302-315.
  4. Furlanetto, Francesco & Natvik, Gisle J. & Seneca, Martin, 2013. "Investment shocks and macroeconomic co-movement," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 208-216.
  5. Furlanetto, Francesco & Seneca, Martin, 2014. "Investment shocks and consumption," European Economic Review, Elsevier, vol. 66(C), pages 111-126.

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