Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5099234 | Journal of Economic Dynamics and Control | 2012 | 19 Pages |
Abstract
The theoretical literature on business cycles predicts a positive investment response to productivity improvements, a prediction we question from theoretical and empirical perspectives. We show that a short-term negative response of investment to a positive technology shock is consistent with a reasonably parameterized new Keynesian dynamic stochastic general equilibrium (DSGE) model in which firm-specific capital introduces an additional real rigidity, and monetary policy is not fully accommodative. Employing Bayesian techniques, we provide evidence that permanent productivity improvements have short-term, contractionary effects on investment. Although this result can be obtained from both firm-specific and rental capital models, only in the case of the former is the average price duration in line with the microeconometric evidence.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Francesco Giuli, Massimiliano Tancioni,