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Investment-specific technology shocks and consumption

Francesco Furlanetto () and Martin Seneca

No 2010/30, Working Paper from Norges Bank

Abstract: Current business cycle models systematically underestimate the correlation between consumption and investment. One reason for this failure is that a positive investment-specific technology shock generally induces a negative consumption response. The objective of this paper is to investigate whether positive consumption responses to investment-specific technology shocks can be obtained in a modern business cycle model. We find that the answer to this question is yes. With a combination of nominal rigidities and non-separable preferences, the consumption response is positive for general parameterisations of the model.

Keywords: Investment-specific technology shocks; Consumption; GHH preferences; Nominal rigidities; Comovement. (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
Date: 2010-12-29
Note: First version:
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