Investment-specific technology shocks and consumption
Francesco Furlanetto () and
Economics from Department of Economics, Central bank of Iceland
Modern business cycle models systematically underestimate the correlation between consumption and investment. One reason for this failure is that, generally, positive investment-specific technology shocks induce a negative consumption response. The objective of this paper is to investigate whether a positive consumption response 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 very general parameterisations of the model.
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Working Paper: Investment-specific technology shocks and consumption (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ice:wpaper:wp49
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