Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5099198 | Journal of Economic Dynamics and Control | 2009 | 16 Pages |
Abstract
A defining feature of business cycles is the comovement of inputs at the sectoral level with aggregate activity. Standard models cannot account for this phenomenon. This paper develops and estimates a two-sector dynamic general equilibrium model that can account for this key regularity. My model incorporates three shocks to the economy: monetary policy shocks, neutral technology shocks, and embodied technology shocks in the capital-producing sector. The estimated model is able to account for the response of the U.S. economy to all three shocks. Using this model, I argue that the key friction underlying sectoral comovement is rigidity in nominal wages.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Riccardo DiCecio,