Real rigidities, productivity improvements and investment dynamics

Francesco Giuli and Massimiliano Tancioni ()

Journal of Economic Dynamics and Control, 2012, vol. 36, issue 1, 100-118

Abstract: The theoretical literature on business cycles predicts a positive investment response to productivity improvements, a prediction we question from theoretical and empirical perspectives. We show that a short-term negative response of investment to a positive technology shock is consistent with a reasonably parameterized new Keynesian dynamic stochastic general equilibrium (DSGE) model in which firm-specific capital introduces an additional real rigidity, and monetary policy is not fully accommodative. Employing Bayesian techniques, we provide evidence that permanent productivity improvements have short-term, contractionary effects on investment. Although this result can be obtained from both firm-specific and rental capital models, only in the case of the former is the average price duration in line with the microeconometric evidence.

Keywords: Firm-specific capital; NK-DSGE model; Technology shocks; Investment dynamics; Bayesian inference (search for similar items in EconPapers)
JEL-codes: C11 E22 E32 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:36:y:2012:i:1:p:100-118

DOI: 10.1016/j.jedc.2011.09.002

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