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Comovement: it's not a puzzle

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  • Riccardo DiCecio

    (FRB of St. Louis)

Abstract

A defining feature of business cycles is the comovement of inputs at the sectoral level with aggregate activity. Standard models cannot account for this phenomenon. This paper develops and estimates a two-sector dynamic general equilibrium model that can account for this key regularity. My model incorporates three shocks to the economy: monetary policy shocks, neutral technology shocks, 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 sectoral comovement is rigidity in nominal wages.

Suggested Citation

  • Riccardo DiCecio, 2008. "Comovement: it's not a puzzle," 2008 Meeting Papers 884, Society for Economic Dynamics.
  • Handle: RePEc:red:sed008:884
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2011. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 225-247, April.
    2. S. Rebelo., 2010. "Real Business Cycle Models: Past, Present, and Future," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 10.
    3. Hall, Alastair R. & Inoue, Atsushi & Nason, James M. & Rossi, Barbara, 2012. "Information criteria for impulse response function matching estimation of DSGE models," Journal of Econometrics, Elsevier, pages 499-518.
    4. Hall, Alastair R. & Inoue, Atsushi & Nason, James M. & Rossi, Barbara, 2012. "Information criteria for impulse response function matching estimation of DSGE models," Journal of Econometrics, Elsevier, pages 499-518.
    5. Matteo Iacoviello & Stefano Neri, 2010. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," American Economic Journal: Macroeconomics, American Economic Association, pages 125-164.
    6. Poghosyan, Karen & Boldea, Otilia, 2013. "Structural versus matching estimation: Transmission mechanisms in Armenia," Economic Modelling, Elsevier, vol. 30(C), pages 136-148.
    7. Nao Sudo, 2012. "Sectoral Comovement, Monetary Policy Shocks, and Input–Output Structure," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(6), pages 1225-1244, September.
    8. Matteo Iacoviello & Stefano Neri, 2008. "Housing market spillovers: Evidence from an estimated DSGE model," Temi di discussione (Economic working papers) 659, Bank of Italy, Economic Research and International Relations Area.
    9. Riccardo DiCecio & Edward Nelson, 2007. "An estimated DSGE model for the United Kingdom," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 215-232.
    10. Matteo Iacoviello & Stefano Neri, 2008. "Housing market spillovers : evidence from an estimated DSGE model," Working Paper Research 145, National Bank of Belgium.
    11. Edge, Rochelle M. & Kiley, Michael T. & Laforte, Jean-Philippe, 2008. "Natural rate measures in an estimated DSGE model of the U.S. economy," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2512-2535, August.
    12. Jaimovich, Nir & Floetotto, Max, 2008. "Firm dynamics, markup variations, and the business cycle," Journal of Monetary Economics, Elsevier, pages 1238-1252.
    13. Matteo Iacoviello & Stefano Neri, 2010. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," American Economic Journal: Macroeconomics, American Economic Association, pages 125-164.
    14. Rochelle M. Edge & Michael T. Kiley & Jean-Philippe Laforte, 2007. "Documentation of the Research and Statistics Division’s estimated DSGE model of the U.S. economy: 2006 version," Finance and Economics Discussion Series 2007-53, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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