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Investment shocks and macroeconomic co-movement

Francesco Furlanetto (), Gisle Natvik and Martin Seneca

No 2011/14, Working Paper from Norges Bank

Abstract: Recent studies find that shocks to the marginal efficiency of investment are a main driver of business cycles. Yet, they struggle to explain why consumption co-moves with real variables such as investment and output, which is a typical feature of an empirically recognizable business cycle. In this paper we show that within a conventional business cycle model, rule-of-thumb consumption provides a straightforward explanation of macroeconomic co-movement after a shock to the marginal efficiency of investment.

Keywords: Investment shocks; consumption; rule-of-thumb consumers; nominal rigidities; co-movement (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-opm
Date: 2011-08-31
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https://www.norges-bank.no/en/news-events/news-pub ... pers/2011/wp-201114/

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Journal Article: Investment shocks and macroeconomic co-movement (2013) Downloads
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