Consumption response to investment shocks under financial frictions

Abeer Reza

Economics Letters, 2014, vol. 123, issue 1, 50-53

Abstract: Consumption falls counter-factually on impact for investment-specific technology shocks, which, recent literature suggests, are important drivers of business cycles. Introducing financial frictions and variable capacity utilization to the standard New-Keynesian setup can overturn this co-movement problem, without imposing restrictions on wealth effects, or wage rigidities.

Keywords: Financial frictions; Investment shocks; Co-movement (search for similar items in EconPapers)
JEL-codes: E2 E3 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:123:y:2014:i:1:p:50-53

DOI: 10.1016/j.econlet.2014.01.009

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