Investment-Specific Technology Shocks and Consumption

48 Pages Posted: 9 Jan 2011

Date Written: December 1, 2010

Abstract

Current business cycle models systematically underestimate the correlation between consumption and investment. One reason for this failure is that a positive investment-specific technology shock generally induces a negative consumption response. The objective of this paper is to investigate whether positive consumption responses to investment-specific technology shocks can be obtained in a modern business cycle model. We find that the answer to this question is yes. With a combination of nominal rigidities and non-separable preferences, the consumption response is positive for general parameterisations of the model.

Keywords: investment-specific technology shocks, consumption, GHH preferences, nominal rigidities, comovement.

JEL Classification: E32.

Suggested Citation

Furlanetto, Francesco and Seneca, Martin, Investment-Specific Technology Shocks and Consumption (December 1, 2010). Norges Bank Working Paper No. 2010/30 . Available at SSRN: https://ssrn.com/abstract=1735427 or http://dx.doi.org/10.2139/ssrn.1735427

Francesco Furlanetto (Contact Author)

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Martin Seneca

Independent ( email )

No Address Available

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