Long run productivity risk and aggregate investment

Jack Favilukis and Xiaoji Lin

Journal of Monetary Economics, 2013, vol. 60, issue 6, 737-751

Abstract: Long-run productivity risk – shocks to the growth rate of productivity – offers an alternative to microfrictions explanations of aggregate investment non-linearities, in particular the heteroscedasticity of investment rate. Additionally, consistent with the data, these shocks imply that investment rate is history dependent (rising through expansions), its growth is positively autocorrelated, and it is positively correlated with output growth at various leads and lags. A standard model with shocks to the level of productivity either predicts opposite investment behavior or fails to quantitatively capture these features in the data.

Date: 2013
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Working Paper: Long Run Productivity Risk and Aggregate Investment (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:60:y:2013:i:6:p:737-751

DOI: 10.1016/j.jmoneco.2013.05.002

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