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Investment; Specific Technology Shocks and International Business Cycles: An Empirical Assessment

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Abstract

In this paper, we first introduce investment-specific technology (IST) shocks to an otherwise standard international real business cycle model and show that a thoughtful calibration of them along the lines of Raffo (2009) successfully addresses the "quantity", "international comovement", "Backus-Smith", and "price" puzzles. Second, we use OECD data for the relative price of investment to build and estimate these IST processes across the U.S and a "rest of the world" aggregate, showing that they are cointegrated and well represented by a vector error correction model (VECM). Finally, we demonstrate that when we fit such estimated IST processes in the model instead of the calibrated ones, the shocks are actually not as powerful to explain any of the four montioned puzzles.

Suggested Citation

  • International Monetary Fund, 2010. "Investment; Specific Technology Shocks and International Business Cycles: An Empirical Assessment," IMF Working Papers 10/207, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/207
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    More about this item

    Keywords

    Business cycles; Demand; Consumption; Cross country analysis; External shocks; Economic models; Productivity; Investment; International trade; United States; International Business Cycles; Cointegration; Investment-Specific Technology Shocks; tfp; statistics; statistic;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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