Investment Shocks and the Relative Price of Investment

Andrea Tambalotti, Giorgio Primiceri and Alejandro Justiniano

No 7598, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We estimate a New-Neoclassical Synthesis business cycle model with two investment shocks. The first, an investment-specific technology shock, affects the transformation of consumption into investment goods and is identified with the relative price of investment. The second shock affects the production of installed capital from investment goods or, more broadly, the transformation of savings into the future capital input. We find that this shock is the most important driver of U.S. business cycle fluctuations in the post-war period and that it is likely to proxy for more fundamental disturbances to the functioning of the financial sector. To corroborate this interpretation, we show that it correlates strongly with interest rate spreads and that it played a particularly important role in the recession of 2008.

Keywords: Business cycles; Dsge model; Financial factors; Investment-specific technology (search for similar items in EconPapers)
JEL-codes: C11 E22 E30 (search for similar items in EconPapers)
Date: 2009-12
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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Citations: View citations in EconPapers (47)

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Journal Article: Investment Shocks and the Relative Price of Investment (2011)
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