Firm-Specific Capital, Productivity Shocks and Investment Dynamics

Francesco Giuli and Massimiliano Tancioni

No 120, Working Papers from Sapienza University of Rome, Department of Public Economics

Abstract: The theoretical literature on business cycles predicts a positive investment response to productivity improvements. In this work we question this prediction from theoretical and empirical standpoints. We first show that a negative short-term response of investment to a positive technology shock is consistent with a plausibly parameterized new Keynesian DSGE model in which capital is firm-specific and monetary policy is not fully accommodative. Employing Bayesian techniques, we then provide evidence that permanent productivity improvements have short-term contractionary effects on investment. Even if this result emerges in both the firm-specific and rental capital specifications, only with the former the estimated average price duration is in line with microeconometric evidence. In the firm-specific capital model, strategic complementarity in price setting leads to a degree of price inertia which is higher than that implied by the frequency at which firms change their prices.

Keywords: firm-specific capital; NK-DSGE model; technology shocks; investment dynamics; Bayesian inference. (search for similar items in EconPapers)
JEL-codes: E32 E22 C11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
Date: 2009-05
View list of references

Downloads: (external link)
http://dep.eco.uniroma1.it/docs/working_papers/WP120.pdf 2009 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:sap:wpaper:120

Access Statistics for this paper

More papers in Working Papers from Sapienza University of Rome, Department of Public Economics
Contact information at EDIRC.
Series data maintained by Luisa Giuriato ().