Investment: Specific Technology Shocks and International Business Cycles: An Empirical Assessment
September 1, 2010
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Summary
In this paper, we first introduce investment-specific technology (IST) shocks to an otherwise standard international real business cycle model and show that a thoughtful calibration of them along the lines of Raffo (2009) successfully addresses the "quantity", "international comovement", "Backus-Smith", and "price" puzzles. Second, we use OECD data for the relative price of investment to build and estimate these IST processes across the U.S and a "rest of the world" aggregate, showing that they are cointegrated and well represented by a vector error correction model (VECM). Finally, we demonstrate that when we fit such estimated IST processes in the model instead of the calibrated ones, the shocks are actually not as powerful to explain any of the four montioned puzzles.
Subject: Consumption, Econometric analysis, International trade, Labor, Labor supply, National accounts, Production, Terms of trade, Total factor productivity, Vector error correction models
Keywords: capital formation, Cointegration, Consumption, International Business Cycles, Investment-Specific Technology Shocks, IST process, IST shock, Labor supply, log) IST, standard deviation, Terms of trade, TFP processes, TFP shock, Total factor productivity, Vector error correction models, WP
Pages:
43
Volume:
2010
DOI:
Issue:
207
Series:
Working Paper No. 2010/207
Stock No:
WPIEA2010207
ISBN:
9781455205387
ISSN:
1018-5941
