IDEAS home Printed from https://ideas.repec.org/a/eee/jmacro/v37y2013icp208-216.html
   My bibliography  Save this article

Investment shocks and macroeconomic co-movement

Author

Listed:
  • Furlanetto, Francesco
  • Natvik, Gisle J.
  • Seneca, Martin

Abstract

Recent studies find that shocks to the marginal efficiency of investment are main drivers of business cycles. However, they struggle to explain why consumption co-moves with key real variables such as investment and output. In this paper, we show that, within a conventional business cycle model, rule-of-thumb consumption provides a straightforward explanation of macroeconomic co-movement after a shock to the marginal efficiency of investment.

Suggested Citation

  • Furlanetto, Francesco & Natvik, Gisle J. & Seneca, Martin, 2013. "Investment shocks and macroeconomic co-movement," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 208-216.
  • Handle: RePEc:eee:jmacro:v:37:y:2013:i:c:p:208-216
    DOI: 10.1016/j.jmacro.2013.03.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0164070413000827
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Justiniano, Alejandro & Primiceri, Giorgio E. & Tambalotti, Andrea, 2010. "Investment shocks and business cycles," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 132-145, March.
    2. Giorgio Motta & Patrizio Tirelli, 2012. "Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(7), pages 1351-1374, October.
    3. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    4. José-Víctor Ríos-Rull & Frank Schorfheide & Cristina Fuentes-Albero & Raul Santaeulalia-Llopis & Maxym Kryshko, 2009. "Methods versus substance: measuring the effects of technology shocks on hours," Staff Report 433, Federal Reserve Bank of Minneapolis.
    5. Eusepi, Stefano & Preston, Bruce, 2015. "Consumption heterogeneity, employment dynamics and macroeconomic co-movement," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 13-32.
    6. Taylor, John B., 1999. "Staggered price and wage setting in macroeconomics," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 15, pages 1009-1050 Elsevier.
    7. Francesco Furlanetto & Martin Seneca, 2010. "Investment-specific technology shocks and consumption," Working Paper 2010/30, Norges Bank.
    8. Khan, Hashmat & Tsoukalas, John, 2011. "Investment shocks and the comovement problem," Journal of Economic Dynamics and Control, Elsevier, vol. 35(1), pages 115-130, January.
    9. Jordi Galí & J. David López-Salido, 2003. "Rule-of-Thumb Consumers and the Design of Interest Rate Rules," Working Papers 104, Barcelona Graduate School of Economics.
    10. Nir Jaimovich & Sergio Rebelo, 2009. "Can News about the Future Drive the Business Cycle?," American Economic Review, American Economic Association, vol. 99(4), pages 1097-1118, September.
    11. Furlanetto, Francesco, 2011. "Fiscal stimulus and the role of wage rigidity," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 512-527, April.
    12. Gisle James Natvik, 2009. "Government Spending and the Taylor Principle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(1), pages 57-77, February.
    13. 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.
    14. Andrea Colciago, 2011. "Rule‐of‐Thumb Consumers Meet Sticky Wages," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 325-353, March.
    15. Sebastian Dyrda & Greg Kaplan & José-Víctor Ríos-Rull, 2012. "Business Cycles and Household Formation: The Micro vs the Macro Labor Elasticity," NBER Working Papers 17880, National Bureau of Economic Research, Inc.
    16. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," American Economic Review, American Economic Association, vol. 90(2), pages 120-125, May.
    17. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    18. Robert J. Barro & Robert G. King, 1984. "Time-Separable Preferences and Intertemporal-Substitution Models of Business Cycles," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 817-839.
    19. Mark Gertler & Luca Sala & Antonella Trigari, 2008. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1713-1764, December.
    20. Bilbiie, Florin O., 2008. "Limited asset markets participation, monetary policy and (inverted) aggregate demand logic," Journal of Economic Theory, Elsevier, vol. 140(1), pages 162-196, May.
    21. Günter Coenen & Roland Straub, 2005. "Does Government Spending Crowd in Private Consumption? Theory and Empirical Evidence for the Euro Area," International Finance, Wiley Blackwell, vol. 8(3), pages 435-470, December.
    22. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    23. Huang, Kevin X. D. & Liu, Zheng, 2002. "Staggered price-setting, staggered wage-setting, and business cycle persistence," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 405-433, March.
    24. Stefano Eusepi & Bruce Preston, 2009. "Labor Supply Heterogeneity and Macroeconomic Co-movement," NBER Working Papers 15561, National Bureau of Economic Research, Inc.
    25. Jordi Galí & J. David López-Salido & Javier Vallés, 2007. "Understanding the Effects of Government Spending on Consumption," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 227-270, March.
    26. Luca Guerrieri & Dale W. Henderson & Jinill Kim, 2010. "Interpreting investment-specific technology shocks," International Finance Discussion Papers 1000, Board of Governors of the Federal Reserve System (U.S.).
    27. Cogan, John F. & Cwik, Tobias & Taylor, John B. & Wieland, Volker, 2010. "New Keynesian versus old Keynesian government spending multipliers," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 281-295, March.
    28. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-1085, December.
    29. Sbordone, Argia M., 2002. "Prices and unit labor costs: a new test of price stickiness," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 265-292, March.
    30. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2014. "Consumption and Labor Supply with Partial Insurance: An Analytical Framework," American Economic Review, American Economic Association, vol. 104(7), pages 2075-2126, July.
    31. Linnemann, Ludger, 2006. "The Effect of Government Spending on Private Consumption: A Puzzle?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1715-1735, October.
    32. Roland Straub & Gert Peersman, 2006. "Putting the New Keynesian Model to a Test," IMF Working Papers 06/135, International Monetary Fund.
    33. Francesco Furlanetto & Martin Seneca, 2012. "Rule-of-Thumb Consumers, Productivity, and Hours," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 658-679, June.
    34. Greg Kaplan & Giovanni L. Violante, 2011. "A Model of the Consumption Response to Fiscal Stimulus Payments," NBER Working Papers 17338, National Bureau of Economic Research, Inc.
    35. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters,in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
    36. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-417, June.
    37. repec:fth:harver:1435 is not listed on IDEAS
    38. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    39. Gisle James Natvik, 2012. "Government Spending Shocks and Rule-of-Thumb Consumers with Steady-State Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1414-1436, December.
    40. Michael Keane & Richard Rogerson, 2012. "Micro and Macro Labor Supply Elasticities: A Reassessment of Conventional Wisdom," Journal of Economic Literature, American Economic Association, vol. 50(2), pages 464-476, June.
    41. Griffin, Peter, 1992. "The Impact of Affirmative Action on Labor Demand: A Test of Some Implications of the Le Chatelier Principle," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 251-260, May.
    42. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1415-1464.
    43. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Albonico, Alice & Paccagnini, Alessia & Tirelli, Patrizio, 2016. "In search of the Euro area fiscal stance," Journal of Empirical Finance, Elsevier, vol. 39(PB), pages 254-264.
    2. Giuliano Curatola & Michael Donadelli & Patrick Gruning & Christoph Meinerding, 2016. "Investment-Specific Shocks, Business Cycles, and Asset Prices," Bank of Lithuania Working Paper Series 36, Bank of Lithuania.
    3. Furlanetto, Francesco & Seneca, Martin, 2014. "New Perspectives On Depreciation Shocks As A Source Of Business Cycle Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 18(06), pages 1209-1233, September.
    4. Francesco Furlanetto & Martin Seneca, 2010. "Investment-specific technology shocks and consumption," Working Paper 2010/30, Norges Bank.
    5. Furlanetto, Francesco, 2011. "Fiscal stimulus and the role of wage rigidity," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 512-527, April.
    6. Bruno Chiarini & Maria Ferrara & Elisabetta Marzano, 2016. "Investment Shocks, Tax Evasion and the Consumption Puzzle: A DSGE Analysis with Financial Frictions," CESifo Working Paper Series 6015, CESifo Group Munich.
    7. Drago Bergholt, 2015. "Foreign Shocks," Working Papers No 11/2015, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    8. Rahul Nath, 2018. "Equity Pricing New Keynesian Models with Nominal Rigidities and Investment," Economics Series Working Papers 850, University of Oxford, Department of Economics.
    9. Alice, Albonico & Alessia, Paccagnini & Patrizio, Tirelli, 2016. "PIIGS in the Euro Area. An Empirical DSGE Model," Working Papers 331, University of Milano-Bicocca, Department of Economics, revised 11 Mar 2016.
    10. Alice Albonico & Alessia Paccagnini & Patrizio Tirelli, 2014. "Estimating a DSGE model with Limited Asset Market Participation for the Euro Area," Working Papers 286, University of Milano-Bicocca, Department of Economics, revised Nov 2014.
    11. Lorenzo Menna & Patrizio Tirelli, 2014. "The Equity Premium in a DSGE Model with Limited Asset Market Participation," Working Papers 275, University of Milano-Bicocca, Department of Economics, revised Jun 2014.
    12. Drago Bergholt, 2014. "Foreign shocks in an estimated multi-sector model," Working Papers No 4/2014, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    13. Furlanetto, Francesco & Seneca, Martin, 2014. "Investment shocks and consumption," European Economic Review, Elsevier, vol. 66(C), pages 111-126.

    More about this item

    Keywords

    Investment shocks; Consumption; Rule-of-thumb consumers; Nominal rigidities; Co-movement;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:37:y:2013:i:c:p:208-216. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/622617 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.