 Firm-Specific Capital, Productivity Shocks and Investment DynamicsFrancesco Giuli and Massimiliano Tancioni () No 120, Working Papers in Public Economics from Department of Economics and Law, Sapienza University of Roma Abstract: The theoretical literature on business cycles predicts a positive investment response to productivity improvements. In this work we question this prediction from theoretical and empirical standpoints. We fi rst show that a negative short-term response of investment to a positive technology shock is consistent with a plausibly parameterized new Keynesian DSGE model in which capital is rm-speci c and monetary policy is not fully accommodative. Employing Bayesian techniques, we then provide evidence that permanent productivity improvements have short-term contractionary e¤ects on investment. Even if this result emerges in both the rm-speci c and rental capital speci cations, only with the former the estimated average price duration is in line with microeconometric evidence. In the rm-speci c capital model, strategic complementarity in price setting leads to a degree of price inertia which is higher than that implied by the frequency at which rms change their prices. Keywords: rm-speci c capital; NK-DSGE model; technology shocks; investment dynamics; Bayesian inference. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:sap:wpaper:wp120 Access Statistics for this paper More papers in Working Papers in Public Economics from Department of Economics and Law, Sapienza University of Roma |
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