Interpreting Shocks to the Relative Price of Investment with a Two-Sector Model

Luca Guerrieri, Dale Henderson and Jinill Kim

No 2016-7, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Consumption and investment comove over the business cycle in response to shocks that permanently move the price of investment. The interpretation of these shocks has relied on standard one-sector models or on models with two or more sectors that can be aggregated. However, the same interpretation continues to go through in models that cannot be aggregated into a standard one-sector model. Furthermore, such a two-sector model with distinct factor input shares across production sectors and commingling of sectoral outputs in the assembly of final consumption and investment goods, in line with the U.S. Input-Output Tables, has implications for aggregate variables. It yields a closer match to the empirical evidence of positive comovement for consumption and investment.

Keywords: DSGE Models; Long-Run Restrictions; multisector models; vector autoregressions (search for similar items in EconPapers)
JEL-codes: E13 E32 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2016-02-08
New Economics Papers: this item is included in nep-mac
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http://www.federalreserve.gov/econresdata/feds/2016/files/2016007pap.pdf Full text (application/pdf)
http://dx.doi.org/10.17016/FEDS.2016.007 DOI (application/pdf)

Related works:
Journal Article: Interpreting shocks to the relative price of investment with a two‐sector model (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2016-07

DOI: 10.17016/FEDS.2016.007

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