The Dynamic Effects of Neutral and Investment-Specific Technology Shocks

Posted: 25 Jun 2006

See all articles by Jonas D. M. Fisher

Jonas D. M. Fisher

Federal Reserve Bank of Chicago - Economic Research Department

Abstract

The neoclassical growth model is used to identify the short-run effects of neutral technology shocks, which affect the production of all goods homogeneously, and investment-specific shocks, which affect only investment goods. The real equipment price, crucial for identifying the investment shocks, experiences an abrupt increase in its average rate of decline in 1982, so the analysis is based on a split sample. On the basis of the preferred specification, the two technology shocks account for 73 percent of hours' and 44 percent of output's business cycle variation before 1982, and 38 percent and 80 percent afterward. The shocks also account for more than 40 percent of hours' and 58 percent of output's forecast errors over a three- to eight-year horizon in both samples. The majority of these effects are driven by the investment shocks.

Suggested Citation

Fisher, Jonas D. M., The Dynamic Effects of Neutral and Investment-Specific Technology Shocks. Journal of Political Economy, Vol. 114, pp. 413-451, June 2006 , Available at SSRN: https://ssrn.com/abstract=911241

Jonas D. M. Fisher (Contact Author)

Federal Reserve Bank of Chicago - Economic Research Department ( email )

230 South LaSalle Street
Chicago, IL 60604-1413
United States

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