Stock Market and Investment Goods Prices: Implications for Macroeconomics
AbstractStock 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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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10031.
Date of creation: Oct 2003
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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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-30 (All new papers)
- NEP-DGE-2003-11-30 (Dynamic General Equilibrium)
- NEP-FIN-2003-11-30 (Finance)
- NEP-MAC-2003-11-30 (Macroeconomics)
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- Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003.
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International Finance Discussion Papers
768, Board of Governors of the Federal Reserve System (U.S.).
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NBER Working Papers
6192, National Bureau of Economic Research, Inc.
- 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.
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