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Investment - Specific Technology Shocks and International Business Cycles: An Empirical Assessment

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  • International Monetary Fund

Abstract

In this paper, we first introduce investment-specific technology (IST) shocks to an otherwise standard international real business cycle model and show that a thoughtful calibration of them along the lines of Raffo (2009) successfully addresses the 'quantity', 'international comovement', 'Backus-Smith', and 'price' puzzles. Second, we use OECD data for the relative price of investment to build and estimate these IST processes across the U.S and a 'rest of the world' aggregate, showing that they are cointegrated and well represented by a vector error correction model (VECM). Finally, we demonstrate that when we fit such estimated IST processes in the model instead of the calibrated ones, the shocks are actually not as powerful to explain any of the four montioned puzzles.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/207.

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Length: 29
Date of creation: 01 Sep 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/207

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Keywords: Economic models; External shocks; Productivity;

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References

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  1. Peter N. Ireland, 2009. "Stochastic Growth in the United States and Euro Area," Boston College Working Papers in Economics 713, Boston College Department of Economics, revised 01 Aug 2010.
  2. Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, 2008. "Investment shocks and business cycles," Working Paper Series WP-08-12, Federal Reserve Bank of Chicago.
  3. Andrea Raffo, 2008. "Technology Shocks: Novel Implications for International Business Cycles," 2008 Meeting Papers 511, Society for Economic Dynamics.
  4. Backus, David K. & Smith, Gregor W., 1993. "Consumption and real exchange rates in dynamic economies with non-traded goods," Journal of International Economics, Elsevier, vol. 35(3-4), pages 297-316, November.
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  7. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2003. "International risk-sharing and the transmission of productivity shocks," Working Papers 03-19, Federal Reserve Bank of Philadelphia.
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  27. Raffo, Andrea, 2008. "Net exports, consumption volatility and international business cycle models," Journal of International Economics, Elsevier, vol. 75(1), pages 14-29, May.
  28. V. V Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 533-563.
  29. Jonas D. M. Fisher, 2006. "The Dynamic Effects of Neutral and Investment-Specific Technology Shocks," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 413-451, June.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Investment-specific technology shocks and international business cycles: an empirical assessment
    by Christian Zimmermann in NEP-DGE blog on 2010-04-12 03:38:48
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Lawrence J. Christiano & Mathias Trabandt & Karl Walentin, 2010. "Introducing financial frictions and unemployment into a small open economy model," CQER Working Paper 2010-04, Federal Reserve Bank of Atlanta.
  2. Giancarlo Corsetti & Luca Dedola & Francesca Viani, 2012. "Traded and Nontraded Goods Prices, and International Risk Sharing: An Empirical Investigation," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 8(1), pages 403 - 466.
  3. Peter N. Ireland, 2009. "Stochastic Growth in the United States and Euro Area," Boston College Working Papers in Economics 713, Boston College Department of Economics, revised 01 Aug 2010.
  4. P. Jacob & G. Peersman, 2008. "Dissecting the Dynamics of the US Trade Balance in an Estimated Equilibrium Model," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 08/544, Ghent University, Faculty of Economics and Business Administration.
  5. Gao, Xiaodan & Hnatkovska, Viktoria & Marmer, Vadim, 2012. "Limited Participation in International Business Cycle Models: A Formal Evaluation," Micro Theory Working Papers vadim_marmer-2012-1, Microeconomics.ca Website, revised 24 Jan 2012.

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