The role of investment-specific technology shocks in driving international business cycles: a bayesian approach

Jaya Dey

MPRA Paper from University Library of Munich, Germany

Abstract: This paper uses a Bayesian approach to estimate a standard international real business cycle model augmented with preferences with zero wealth-effect, variable capacity utilization and investment adjustment costs. First, I find that the bulk of fluctuations in country-specific outputs, consumption, investments, and international relative prices are attributed to country-specific neutral technology, investment-specific technology and preference shocks. Second, my estimated model with economically meaningful shocks simultaneously accounts for the negative correlation between the real exchange rate and relative consumption, and the negative correlation between the terms of trade and relative output. Lastly, by using marginal likelihood comparison exercise, I find that the success of the model depends on preferences with zero wealth effects; other frictions and alternative asset market structures play a less important role.

Keywords: Bayesian; investment-specific technology; real exchange rate (search for similar items in EconPapers)
JEL-codes: C11 E32 F32 F41 (search for similar items in EconPapers)
Date: 2013-01-09, Revised 2014-08-06
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:57803

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