International Finance Discussion Papers
Sub-Title:
Interpreting Investment-Specific Technology ShocksAuthor:
Luca GuerrieriPublisher:
BiblioBazaarImprint:
BiblioGovPublication Date:
02-01-2013ISBN:
9781288725137Pages:
50Available as:
Paperback, 9781288725137Description:
Investment-specific technology (IST) shocks are often interpreted as multi-factor productivity (MFP) shocks in a separate investment-producing sector. However, this interpretation is strictly valid only when some stringent conditions are satisfied. Some of these conditions are at odds with the data. Using a two-sector model whose calibration is based on the U.S. Input-Output Tables, we consider the implications of relaxing several of these conditions. In particular, we show how the effects of IST shocks in a one-sector model differ from those of MFP shocks to an investment-producing sector of a two-sector model. Importantly, with a menu of shocks drawn from recent empirical studies, MFP shocks induce a positive short-run correlation between consumption and investment consistent with U.S. data, while IST shocks do not.
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