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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: 43
Date of creation: 01 Sep 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/207

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Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
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Web page: http://www.imf.org/external/pubind.htm
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Related research

Keywords: Economic models; External shocks; Productivity; cointegration; statistics; business cycles; statistic; standard deviation; business cycle; correlations; correlation; consumption expenditure; equation; capital formation; final consumption expenditure; real gdp; real business cycle; calibration; gross fixed capital formation; fixed capital formation; probability; equations; business cycle fluctuations; stochastic processes; growth model; standard deviations; gdps; growth rates; stochastic process; prediction; general equilibrium models; hypothesis testing; stationary processes; growth rate; gross domestic product; national income; linear trend; total factor productivity; univariate analysis; functional form; real business cycles;

This paper has been announced in the following NEP Reports:

References

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  1. Stephanie Schmitt-Grohe & Martin Uribe, 2008. "What's News in Business Cycles," NBER Working Papers 14215, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Giancarlo Corsetti & Luca Dedola & Francesca Viani, 2011. "Traded and Nontraded Goods Prices, and International Risk Sharing: an Empirical Investigation," NBER Working Papers 17501, National Bureau of Economic Research, Inc.
  2. Hakon Tretvoll, 2012. "Real exchange rate variability in a two country business cycle model," 2012 Meeting Papers 911, Society for Economic Dynamics.
  3. Hüseyin SEN & Ayse KAYA, 2013. "The Role of Taxes as an Automatic Stabilizer: Evidence from Turkey," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 43(3), pages 303-313, December.
  4. Mandelman, Federico S. & Zanetti, Francesco, 2014. "Flexible prices, labor market frictions and the response of employment to technology shocks," Labour Economics, Elsevier, vol. 26(C), pages 94-102.
  5. Mandelman, Federico S., 2013. "Labor market polarization and international macroeconomic dynamics," Working Paper 2013-17, Federal Reserve Bank of Atlanta.

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