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Reexamining the Cyclical Behavior of the Relative Price of Investment

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  • Paul Beaudry
  • Alban Moura
  • Franck Portier

Abstract

The cyclical behavior of the relative price of investment goods plays an important role in many modern macroeconomic models. In this paper we examine the behavior of several measures of the relative price of investment goods for the U.S. economy over the last fifty years. In particular, we examine whether there are robust cyclical patterns, whether results differ by sub-sample and whether the nature of the deflator matters. Our main result is that there is no robust evidence that this relative price is countercyclical in the data. In fact, for the recent (post-Volcker) period, the relative price of investment appears predominantly procyclical. When looking at more disaggregated series, most measures are procyclical, a few acyclical, and only the price of equipment is significantly countercyclical for some periods and measures. The procyclical behavior of the relative price of aggregate investment is also shown to characterize six other countries of the G7.

Suggested Citation

  • Paul Beaudry & Alban Moura & Franck Portier, 2014. "Reexamining the Cyclical Behavior of the Relative Price of Investment," NBER Working Papers 20550, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20550
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    1. Jordi Galí & Thijs van Rens, 2008. "The vanishing procyclicality of labor productivity," Economics Working Papers 1230, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2010.
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    9. Beaudry, Paul & Portier, Franck, 2004. "An exploration into Pigou's theory of cycles," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1183-1216, September.
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    Cited by:

    1. repec:red:issued:16-315 is not listed on IDEAS
    2. Hashmat Khan & Christopher R. Knittel & Konstantinos Metaxoglou & Maya M. Papineau, 2015. "Carbon Emissions and Business Cycles," Carleton Economic Papers 15-07, Carleton University, Department of Economics, revised 06 May 2017.
    3. Bee-Lon Chen & Shian-Yu Liao, 2017. "Durable Goods, Investment Shocks and the Comovement Problem," IEAS Working Paper : academic research 17-A007, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    4. Alban Moura, 2018. "Investment Shocks, Sticky Prices, and the Endogenous Relative Price of Investment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 48-63, January.
    5. Alban Moura, 2018. "Investment Shocks, Sticky Prices, and the Endogenous Relative Price of Investment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 48-63, January.

    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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