Investment Shocks and Business Cycles

48 Pages Posted: 11 Jun 2008

See all articles by Giorgio E. Primiceri

Giorgio E. Primiceri

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Andrea Tambalotti

Federal Reserve Bank of New York

Alejandro Justiniano

Federal Reserve Bank of Chicago

Multiple version iconThere are 3 versions of this paper

Date Written: March 2008

Abstract

Shocks to the marginal efficiency of investment are the most important drivers of business cycle fluctuations in US output and hours. Moreover, these disturbances drive prices higher in expansions, like a textbook demand shock. We reach these conclusions by estimating a 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. Labour 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.

Keywords: Bayesian, DSGE model, endogenous markups, imperfect competition

JEL Classification: C11, E30

Suggested Citation

Primiceri, Giorgio E. and Tambalotti, Andrea and Justiniano, Alejandro, Investment Shocks and Business Cycles (March 2008). CEPR Discussion Paper No. DP6739, Available at SSRN: https://ssrn.com/abstract=1141645

Giorgio E. Primiceri

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

HOME PAGE: http://faculty.econ.northwestern.edu/faculty/primiceri

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Andrea Tambalotti

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Alejandro Justiniano (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
3
Abstract Views
1,474
PlumX Metrics