Investment-Specific Technology Shocks and Labor Market Frictions

National Bank of Belgium Working Paper No. 108

43 Pages Posted: 7 Oct 2010

See all articles by Reinout De Bock

Reinout De Bock

International Monetary Fund (IMF)

Date Written: February 1, 2007


This paper studies the implications of technical progress through investment-specific technical change in a business cycle model with search and matching frictions and endogenous job destruction. The interaction between the capital formation needed to reap the benefits of an investment-specific technology shock and gradual labor-market matching, generates hump-shaped, persistent responses in output, vacancies, and unemployment. The endogenous job destruction decision also leads to small but persistent endogenous fluctuations in total factor productivity. Simulations suggest a limited role for investment-specific technology shocks as a source of business cycle fluctuations compared to a standard real business cycle model.

Keywords: Labor Market Frictions, Investment-specific Technology Shocks, Business Cycles

JEL Classification: E24, E32, J64

Suggested Citation

De Bock, Reinout, Investment-Specific Technology Shocks and Labor Market Frictions (February 1, 2007). National Bank of Belgium Working Paper No. 108. Available at SSRN: or

Reinout De Bock (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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