Investment-Specific Technology Shocks and International Business Cycles: An Empirical Assessment
Federal Reserve Bank of Atlanta Working Paper Series No. 2010-3
50 Pages Posted: 2 Mar 2010
There are 2 versions of this paper
Investment-Specific Technology Shocks and International Business Cycles: An Empirical Assessment
Investment-Specific Technology Shocks and International Business Cycles: An Empirical Assessment
Date Written: February 2010
Abstract
In this paper, we first introduce investment-specific technology (IST) shocks into an otherwise standard international real business cycle model and show that a thoughtful calibration of them along the lines of Raffo (2009) successfully addresses several of the existing puzzles in the literature. In particular, we obtain a negative correlation of relative consumption and the terms of trade (Backus-Smith puzzle), as well as a more volatile real exchange rate, and cross-country output correlations that are higher than consumption correlations (price and quantity puzzles). Then we use data from the Organisation for Economic Co-operation and Development for the relative price of investment to build and estimate these IST processes across the United States and a "rest of the world" aggregate, showing that they are cointegrated and well represented by a vector error–correction model. Finally, we demonstrate that, when we fit such estimated IST processes into the model, the shocks are actually powerless to explain any of the existing puzzles.
Keywords: international business cycles, cointegration, investment-specific technology shocks
JEL Classification: E32, F32, F33, F41
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
International Risk-Sharing and the Transmission of Productivity Shocks
By Giancarlo Corsetti, Luca Dedola, ...
-
International Risk Sharing and the Transmission of Productivity Shocks
By Giancarlo Corsetti, Luca Dedola, ...
-
Consumption and Real Exchange Rates with Incomplete Markets and Non-Traded Goods
-
Consumption and Real Exchange Rates With Incomplete Markets and Non-Traded Goods
-
International Trade in Durable Goods: Understanding Volatility, Cyclicality, and Elasticities
By Charles M. Engel and Jian Wang
-
Technology Shocks: Novel Implications for International Business Cycles
By Andrea Raffo