Investment Shocks and Business Cycles

Andrea Tambalotti, Giorgio Primiceri and Alejandro Justiniano

No 6739, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Shocks to the marginal efficiency of investment are the most important drivers of business cycle fluctuations in US output and hours. Moreover, these disturbances drive prices higher in expansions, like a textbook demand shock. We reach these conclusions by estimating a DSGE model with several shocks and frictions. We also find that neutral technology shocks are not negligible, but their share in the variance of output is only around 25 percent, and even lower for hours. Labour supply shocks explain a large fraction of the variation of hours at very low frequencies, but not over the business cycle. Finally, we show that imperfect competition and, to a lesser extent, technological frictions are the key to the transmission of investment shocks in the model.

Keywords: Bayesian; Dsge model; Endogenous markups; Imperfect competition (search for similar items in EconPapers)
JEL-codes: C11 E30 (search for similar items in EconPapers)
Date: 2008-03
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (76)

Downloads: (external link)
https://cepr.org/publications/DP6739 (application/pdf)

Related works:
Journal Article: Investment shocks and business cycles (2010)
Working Paper: Investment Shocks and Business Cycles (2009)
Working Paper: Investment shocks and business cycles (2008)
Working Paper: Investment shocks and business cycles (2008)
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: https://EconPapers.repec.org/RePEc:cpr:ceprdp:6739

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP6739

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().