Investment-Specific Technology Shocks Revisited

Shingo Watanabe
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Shingo Watanabe: Associate Director-General and Head of Economic and Studies Division, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: shingo.watanabe@boj.or.jp)

No 20-E-08, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: The relative-price approach to identifying investment-specific technology shocks is inconsistent with a two-sector model with permanent markup change, consumption-specific technology, or sector-specific factor shares. This paper proposes a new approach by finding the model's long- run properties that link labor productivity and the relative price of investment to sector-specific technology change and nontechnology change and by developing a new Max Share identification strategy to exploit these properties. The identified shocks play a large role in both short- and long-run economic fluctuations. This paper also highlights the implications of a broadly overlooked identity between TFP and aggregate sectoral technology.

Keywords: investment-specific technology; total factor productivity; labor productivity; relative price of investment; structural vector autoregression; Max Share (search for similar items in EconPapers)
JEL-codes: E22 E32 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:20-e-08

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