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http://ssrn.com/abstract=457553
 
 

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Stock Market and Investment Goods Prices: Implications for Macroeconomics


Lawrence J. Christiano


Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Jonas D. M. Fisher


Federal Reserve Bank of Chicago - Economic Research Department

October 2003

NBER Working Paper No. w10031

Abstract:     
Stock market prices, a measure of the marginal cost of installed capital, are procyclical. Yet, prices of investment goods, the main input into new installed capital, are countercyclical. We exploit this information to identify the driving forces of the business cycle and the nature of capital installation costs. In our model installation costs are increasing in the growth of investment, and the business cycle is driven by permanent investment-specific technology shocks and transitory neutral technology shocks. When calibrated to the capital price observations, the model does well at accounting for the main features of asset returns and the business cycle of macroeconomic aggregates. In addition, unlike most other models, our's accounts for sectoral comovement in both output and factor inputs.

Number of Pages in PDF File: 33

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Date posted: October 14, 2003  

Suggested Citation

Christiano, Lawrence J. and Fisher, Jonas D. M., Stock Market and Investment Goods Prices: Implications for Macroeconomics (October 2003). NBER Working Paper No. w10031. Available at SSRN: http://ssrn.com/abstract=457553

Contact Information

Lawrence J. Christiano (Contact Author)
Northwestern University ( email )
2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8231 (Phone)
847-491-7001 (Fax)
Federal Reserve Bank of Cleveland
East 6th & Superior
Cleveland, OH 44101-1387
United States
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL 60604
United States
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55480
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Jonas D.M. Fisher
Federal Reserve Bank of Chicago - Economic Research Department ( email )
230 South LaSalle Street
Chicago, IL 60604-1413
United States
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