Business Cycles With A Common Trend in Neutral and Investment-Specific Productivity

Stephanie Schmitt-Grohé () and Martín Uribe

Review of Economic Dynamics, 2011, vol. 14, issue 1, pages 122-135

Abstract: This paper identifies a new source of business-cycle fluctuations. Namely, a common stochastic trend in neutral and investment-specific productivity. We document that in U.S. postwar quarterly data total factor productivity (TFP) and the relative price of investment are cointegrated. We show theoretically that TFP and the relative price of investment are cointegrated if and only if neutral and investment-specific productivity share a common stochastic trend. We econometrically estimate an RBC model augmented with a number of real rigidities and driven by a multitude of shocks. We find that in the context of our estimated model, innovations in the common stochastic trend explain. (Copyright: Elsevier)

Keywords: Sources of business cycles; Investment specific shocks; Technology shocks; Cointegration; Common shocks (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Date: 2011
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