Investment-specific technology shocks and consumption

Francesco Furlanetto and Martin Seneca

Economics from Department of Economics, Central bank of Iceland

Abstract: 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.

Date: 2010-07
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (17)

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Working Paper: Investment-specific technology shocks and consumption (2010)
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