New Perspectives on Depreciation Shocks as a Source of Business Cycle Fluctuations

43 Pages Posted: 28 May 2011

Date Written: February 1, 2011

Abstract

In this paper we study the transmission for capital depreciation shocks. The existing literature in the Real Business Cycle tradition has concluded that these shocks are irrelevant for business cycle fluctuations. We show that these shocks are potentially important drivers of aggregate fluctuations in a New Keynesian model. Nominal rigidities and some persistence in the shock process are the key ingredients to generate co-movement across real variables.

Keywords: depreciation shocks, investment-specific technology shocks, consumption, nominal rigidities, co-movement

JEL Classification: E32

Suggested Citation

Seneca, Martin and Furlanetto, Francesco, New Perspectives on Depreciation Shocks as a Source of Business Cycle Fluctuations (February 1, 2011). Norges Bank Working Paper 2011/02 . Available at SSRN: https://ssrn.com/abstract=1847587

Martin Seneca

Independent ( email )

No Address Available

Francesco Furlanetto (Contact Author)

Norges Bank ( email )

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

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