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Stock Market and Investment Goods Prices: Implications for Macroeconomics

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Author Info
Lawrence J. Christiano
Jonas D. M. Fisher

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Abstract

Stock market prices, a measure of the marginal cost of installed capital, are procyclical. Yet, prices of investment goods, the main input into new installed capital, are countercyclical. We exploit this information to identify the driving forces of the business cycle and the nature of capital installation costs. In our model installation costs are increasing in the growth of investment, and the business cycle is driven by permanent investment-specific technology shocks and transitory neutral technology shocks. When calibrated to the capital price observations, the model does well at accounting for the main features of asset returns and the business cycle of macroeconomic aggregates. In addition, unlike most other models, our's accounts for sectoral comovement in both output and factor inputs.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10031.

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Date of creation: Oct 2003
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Handle: RePEc:nbr:nberwo:10031

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Find related papers by JEL classification:
E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Austan Goolsbee, 1998. "Investment Tax Incentives, Prices, And The Supply Of Capital Goods," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 121-148, February. [Downloadable!] (restricted)
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  2. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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This page was last updated on 2009-11-10.

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