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Comovement: it's not a puzzle

  • Riccardo DiCecio

A defining feature of business cycles is the comovement of inputs at the sectorial level with aggregate activity. Standard models cannot account for this phenomenon. This paper develops and estimates a two-sector dynamic general equilibrium model which can account for this key regularity. My model incorporates three shocks to the economy: monetary policy shocks, neutral technology shocks in the consumption and investment sector, and embodied technology shocks in the capital producing sector. The estimated model is able to account for the response of the US economy to all three shocks. Using this model, I argue that the key friction underlying sectorial comovement is rigidity in nominal wages

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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 113.

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Date of creation: 2004
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Handle: RePEc:red:sed004:113
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/society.htm
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  1. Lawrence J. Christiano & Michele Boldrin & Jonas D. M. Fisher, 2001. "Habit Persistence, Asset Returns, and the Business Cycle," American Economic Review, American Economic Association, vol. 91(1), pages 149-166, March.
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  12. Evi Pappa & Zheng Liu, 2005. "Gains from International Monetary Policy Coordination: Does It Pay to Be Different?," Computing in Economics and Finance 2005 457, Society for Computational Economics.
  13. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1.
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  15. Anderson, Gary & Moore, George, 1985. "A linear algebraic procedure for solving linear perfect foresight models," Economics Letters, Elsevier, vol. 17(3), pages 247-252.
  16. Yi Jin & Zhixiong Zeng, 2002. "The Working Capital Channel and Cross-Sector Comovement," The Journal of Economics, Missouri Valley Economic Association, vol. 28(1), pages 51-65.
  17. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  18. Lawrence J. Cristiano & Terry J. Fitzgerald, 1998. "The business cycle: it's still a puzzle," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 56-83.
  19. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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