Abstract

http://ssrn.com/abstract=1559305
 
 

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Investment-Specific Technology Shocks and International Business Cycles: An Empirical Assessment


Federico Mandelman


Federal Reserve Bank of Atlanta

Pau Rabanal


International Monetary Fund

Juan Francisco Rubio-Ramirez


Duke University - Department of Economics; Federal Reserve Bank of Atlanta - Research Department

Diego Vilán


University of Southern California - Department of Economics

February 2010

Federal Reserve Bank of Atlanta Working Paper Series No. 2010-3

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.

Number of Pages in PDF File: 50

Keywords: international business cycles, cointegration, investment-specific technology shocks

JEL Classification: E32, F32, F33, F41

working papers series


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Date posted: March 2, 2010  

Suggested Citation

Mandelman, Federico and Rabanal, Pau and Rubio-Ramirez, Juan Francisco and Vilán, Diego, Investment-Specific Technology Shocks and International Business Cycles: An Empirical Assessment (February 2010). Federal Reserve Bank of Atlanta Working Paper Series No. 2010-3. Available at SSRN: http://ssrn.com/abstract=1559305 or http://dx.doi.org/10.2139/ssrn.1559305

Contact Information

Federico Mandelman (Contact Author)
Federal Reserve Bank of Atlanta ( email )
1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
Pau Rabanal
International Monetary Fund ( email )
700 19th Street NW
Washington, DC 20431
United States
Juan Francisco Rubio-Ramirez
Duke University - Department of Economics ( email )
Durham, NC 27708-0204
United States
Federal Reserve Bank of Atlanta - Research Department ( email )
1000 Peachtree Street, NE
Atlanta, GA 30309-4470
United States
404-498-8057 (Phone)
404-498-8956 (Fax)
HOME PAGE: http://www.econ.umn.edu/~rubio
Diego Vilán
University of Southern California - Department of Economics ( email )
3620 South Vermont Avenue
Kaprielian Hall 300
Los Angeles, CA CA 90089
United States
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References:  27
Citations:  7

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