Investment-Specific Technology Shocks and Recursive Preferences

Håkon Tretvoll

No 1207, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: Investment-specific technology (IST) shocks have been shown to play a significant role in explaining the business cycle dynamics of the US economy. Recently a debate has arisen over the extent to which these shocks aid our understanding of international business cycles as well. This paper presents an international business cycle model where agents have recursive preferences, and shows that this specification of preferences plays a crucial role for the impact of IST shocks on the joint dynamics of international prices and quantities. The most striking result is that the model generates real exchange rate fluctuations that exhibit both a high volatility relative to output and are uncorrelated with relative consumptions across countries.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:1207

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