Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/60815
Authors: 
Justiniano, Alejandro
Primiceri, Giorgio E.
Tambalotti, Andrea
Year of Publication: 
2009
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 411
Abstract: 
We estimate a New-Neoclassical Synthesis model of the business cycle with two investment shocks. The first, an investment-specific technology shock, affects the transformation of consumption into investment goods and is identified with the relative price of investment. The second shock affects the production of installed capital from investment goods or, more broadly, the transformation of savings into future capital input. We find that this shock is the most important driver of U.S. business cycle fluctuations in the postwar period and that it is likely to proxy for more fundamental disturbances to the functioning of the financial sector. To corroborate this interpretation, we show that the shock correlates strongly with interest rate spreads and that it played a particularly important role in the recession of 2008.
Subjects: 
Business cycles
financial factors
investment-specific technology
DSGE model
JEL: 
C11
E22
E32
Document Type: 
Working Paper

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