Working Paper

Computerizing Households and the Role of Investment-Specific Productivity in Business Cycles

Abstract: Advancements in computer technology have reshaped not only business operations but also household consumption. We estimate a business-cycle model disaggregating consumer IT and non-IT durable goods from the capital stock. We find that shocks to the supply of IT durables account for more than half of the variation in house- holds' real expenditure on IT durables. Furthermore, investment-specific productivity shocks drove nearly half of the rapid growth in household durable expenditures during the 2000s. Nonetheless, they have small influence over output dynamics, because unlike business investment goods, consumer durables do not add to the productive capital of the economy. The shocks become important when household IT goods are complementary to firms' capital, such as when online services are provided through consumers' smartphones.

Keywords: Investment; Durables; Investment-specific productivity;

JEL Classification: E22; E32; E37;

https://doi.org/10.17016/IFDP.2020.1292

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2020-07-09

Number: 1292