Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of New York
Staff Reports
Investment shocks and business cycles
Alejandro Justiniano
Giorgio E. Primiceri
Andrea Tambalotti

Shocks to the marginal efficiency of investment are the most important drivers of business cycle fluctuations in U.S. output and hours. Moreover, like a textbook demand shock, these disturbances drive prices higher in expansions. We reach these conclusions by estimating a dynamic stochastic general equilibrium (DSGE) model with several shocks and frictions. We also find that neutral technology shocks are not negligible, but their share in the variance of output is only around 25 percent and even lower for hours. Labor supply shocks explain a large fraction of the variation of hours at very low frequencies, but not over the business cycle. Finally, we show that imperfect competition and, to a lesser extent, technological frictions are the key to the transmission of investment shocks in the model.

Download Full text
Download Full text
Cite this item
Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, Investment shocks and business cycles, Federal Reserve Bank of New York, Staff Reports 322, 2008.
More from this series
JEL Classification:
Subject headings:
Keywords: Business cycles ; Capital investments ; Stochastic analysis ; Equilibrium (Economics) ; Labor supply ; Competition
For corrections, contact Amy Farber ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal