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Title:Investment shocks and business cycles PDF Logo
Authors:Justiniano, Alejandro
Primiceri, Giorgio E.
Tambalotti, Andrea
Issue Date:2008
Series/Report no.:Staff Report, Federal Reserve Bank of New York 322
Abstract:Shocks to the marginal efficiency of investment are the most important drivers of business cycle fluctuations in U.S. output and hours. Moreover, like a textbook demand shock, these disturbances drive prices higher in expansions. We reach these conclusions by estimating a dynamic stochastic general equilibrium (DSGE) model with several shocks and frictions. We also find that neutral technology shocks are not negligible, but their share in the variance of output is only around 25 percent and even lower for hours. Labor supply shocks explain a large fraction of the variation of hours at very low frequencies, but not over the business cycle. Finally, we show that imperfect competition and, to a lesser extent, technological frictions are the key to the transmission of investment shocks in the model.
Subjects:DSGE model
imperfect competition
endogenous markups
Bayesian methods
JEL:C11
E22
E30
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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