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Investment-Specific Technology Shocks Revisited

Author

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  • Shingo Watanabe

    (Associate Director-General and Head of Economic and Studies Division, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: shingo.watanabe@boj.or.jp))

Abstract

The relative-price approach to identifying investment-specific technology shocks is inconsistent with a two-sector model with permanent markup change, consumption-specific technology, or sector-specific factor shares. This paper proposes a new approach by finding the model's long- run properties that link labor productivity and the relative price of investment to sector-specific technology change and nontechnology change and by developing a new Max Share identification strategy to exploit these properties. The identified shocks play a large role in both short- and long-run economic fluctuations. This paper also highlights the implications of a broadly overlooked identity between TFP and aggregate sectoral technology.

Suggested Citation

  • Shingo Watanabe, 2020. "Investment-Specific Technology Shocks Revisited," IMES Discussion Paper Series 20-E-08, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:20-e-08
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    File URL: https://www.imes.boj.or.jp/research/papers/english/20-E-08.pdf
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    More about this item

    Keywords

    investment-specific technology; total factor productivity; labor productivity; relative price of investment; structural vector autoregression; Max Share;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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