Investment Shocks and Business Cycles / Alejandro Justiniano, Giorgio E. Primiceri, Andrea Tambalotti.

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Justiniano, Alejandro

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w15570.Publication details: Cambridge, Mass. National Bureau of Economic Research 2009.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We study the driving forces of fluctuations in an estimated New Neoclassical Synthesis model of the U.S. economy with several shocks and frictions. In this model, shocks to the marginal efficiency of investment account for the bulk of fluctuations in output and hours at business cycle frequencies. Imperfect competition and, to a lesser extent, technological frictions are the key to their transmission. Labor supply shocks explain a large fraction of the variation in hours at very low frequencies, but are irrelevant over the business cycle. This is important because their microfoundations are widely regarded as unappealing.

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Previous	nber w15568 The Internal Governance of Firms /	nber w15569 Creditor rights and corporate risk-taking /	nber w1557 The Competitive Position of U.S. Manufacturing Firms /	nber w15570 Investment Shocks and Business Cycles /	nber w15571 The Changing Landscape of Blockbuster Punitive Damages Awards /	nber w15572 Profiting from Regulation: An Event Study of the EU Carbon Market /	nber w15573 Lessons from the Great American Real Estate Boom and Bust of the 1920s /	Next

December 2009.

We study the driving forces of fluctuations in an estimated New Neoclassical Synthesis model of the U.S. economy with several shocks and frictions. In this model, shocks to the marginal efficiency of investment account for the bulk of fluctuations in output and hours at business cycle frequencies. Imperfect competition and, to a lesser extent, technological frictions are the key to their transmission. Labor supply shocks explain a large fraction of the variation in hours at very low frequencies, but are irrelevant over the business cycle. This is important because their microfoundations are widely regarded as unappealing.