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New Perspectives on Depreciation Shocks as a Source of Business Cycle Fluctuations

  • Fransesco Furlanetto
  • Martin Seneca

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 a 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 Department of Economics, Central bank of Iceland in its series Economics with number wp48.

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Date of creation: Jul 2010
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Handle: RePEc:ice:wpaper:wp48
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  11. anonymous, 2008. "Monetary policy report to the Congress," Web Site 34, Board of Governors of the Federal Reserve System (U.S.).
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  19. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.
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