Comovement: it's not a puzzle

Riccardo DiCecio

No 884, 2008 Meeting Papers from Society for Economic Dynamics

Abstract: A defining feature of business cycles is the comovement of inputs at the sectoral level with aggregate activity. Standard models cannot account for this phenomenon. This paper develops and estimates a two-sector dynamic general equilibrium model that can account for this key regularity. My model incorporates three shocks to the economy: monetary policy shocks, neutral technology shocks, and embodied technology shocks in the capital-producing sector. The estimated model is able to account for the response of the US economy to all three shocks. Using this model, I argue that the key friction underlying sectoral comovement is rigidity in nominal wages.

Date: 2008
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Related works:
Working Paper: Comovement: it's not a puzzle (2005)
Working Paper: Comovement: it's not a puzzle (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed008:884

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