Investment: Specific Technology Shocks and International Business Cycles: An Empirical Assessment

September 1, 2010

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Format: Chicago

Investment: Specific Technology Shocks and International Business Cycles: An Empirical Assessment, (USA: International Monetary Fund, 2010) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/207
Stock No:

WPIEA2010207
ISBN:

9781455205387
ISSN:

1018-5941

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