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New perspectives on depreciation shocks as a source of business cycle fluctuations

  • Francesco Furlanetto

    (Norges Bank (Central Bank of Norway))

  • Martin Seneca


    (Norges Bank (Central Bank of Norway))

In this paper we study the transmission for capital depreciation shocks. The existing literature in the Real Business Cycle tradition has concluded that these shocks are irrelevant for business cycle fluctuations. We show that these shocks are potentially important drivers of aggregate fluctuations in a New Keynesian model. Nominal rigidities and some persistence in the shock process are the key ingredients to generate co-movement across real variables.

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Paper provided by Norges Bank in its series Working Paper with number 2011/02.

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Length: 43 pages
Date of creation: 25 Mar 2011
Date of revision:
Handle: RePEc:bno:worpap:2011_02
Note: First version:
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