Firm-Specific Capital, Productivity Shocks and Investment Dynamics

30 Pages Posted: 1 Apr 2009

See all articles by Francesco Giuli

Francesco Giuli

University of Rome III - Department of Economics

Massimiliano Tancioni

Sapienza University of Rome, Department of Public Economics

Date Written: April 1, 2009

Abstract

The theoretical literature on business cycles predicts a positive investment response to productivity improvements. In this work we question this prediction from theoretical and empirical standpoints. We first show that a negative short-term response of investment to a positive technology shock is consistent with a plausibly parameterized new Keynesian DSGE model in which capital is firm-specific and monetary policy is not fully accommodative. Employing Bayesian techniques, we then provide evidence that permanent productivity improvements have short-term contractionary effects on investment. Even if this result emerges in both the firm-specific and rental capital specifications, only with the former the estimated average price duration is in line with microeconometric evidence. In the firm-specific capital model, strategic complementarity in price setting leads to a degree of price inertia which is higher than that implied by the frequency at which firms change their prices.

Keywords: firm-specific capital, NK-DSGE model, technology shocks, investment dynamics, Bayesian inference

JEL Classification: E32, E22, C11

Suggested Citation

Giuli, Francesco and Tancioni, Massimiliano, Firm-Specific Capital, Productivity Shocks and Investment Dynamics (April 1, 2009). Available at SSRN: https://ssrn.com/abstract=1371591 or http://dx.doi.org/10.2139/ssrn.1371591

Francesco Giuli

University of Rome III - Department of Economics ( email )

via Ostiense, 139
Rome, 00154
Italy

Massimiliano Tancioni (Contact Author)

Sapienza University of Rome, Department of Public Economics ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

Register to save articles to
your library

Register

Paper statistics

Downloads
66
Abstract Views
552
rank
347,881
PlumX Metrics