Investment shocks and business cycles

By Alejandro Justiniano, Giorgio E. Primiceri, Andrea Tambalotti. 2010

877 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/afd31abd2c6fcda3ff895e664479394152382a0e

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Citations in the corpus

Identification of Financial Factors in Economic Fluctuations (2019, neutral): “…shock that affects the components of aggregate demand other than investment: it may capture a fiscal shock, a shock to consumption (discount factor shocks) or a foreign shock.7 The imposed restrictions are satisfied in standard DSGE models like Smets and Wouters (2007) and Justiniano et al. (2010).”
Financial crises, bank risk exposure and government financial policy (2012, neutral): “with t+1 = 1 + [ t+1 + t+1( st+1 + xt+1 et+1)] (33)”
Size, Trend, and Policy Implications of the Underground Economy (2014, background): “These additional shocks have been proved to be important to explain the variability of data at the business cycle frequencies (see e.g. Smets and Wouters, 2007; Justiniano et al., 2010).”
CAPITAL DESTRUCTION, JOBLESS RECOVERIES, AND THE DISCIPLINE DEVICE ROLE OF UNEMPLOYMENT (2012, neutral): “…capital accumulation process may take the form of a depreciation shock t as in Shimer (2012), a shock to the marginal efficiency of investment ξI,t as in Justiniano and Primiceri (2008) and Justiniano et al. (2010, 2011), or a shock to the quality of capital ξq,t as in Gertler and Kiyotaki (2010).”
What's Up with the Phillips Curve? (2020, neutral): “But most business cycle models with multiple shocks suggest that these dynamics re ect the responses of the economy to a mixture of structural shocks, even if one of them might be preponderant (e.g. Smets and Wouters, 2007 or Justiniano et al., 2010).”
Rare shocks, great recessions (2013, neutral): “Not surprisingly, these shocks are the usual suspects as key drivers of business cycles (see SW; Justiniano et al., 2009).”
Investment Shocks and Asset Prices (2011, background): “…to βI = 0.1 and βC = 0.3, 5The difference in estimates between these two sets of papers is mostly because Fernandez-Villaverde and Rubio-Ramirez (2007) include the relative price of new equipment as an observable variable, whereas Justiniano and Primiceri (2008) and Justiniano et al. (2010) do not.”
On DSGE Models (2018, neutral): “This contrasts sharply with the results in Justiniano et al. (2010), who argue that this shock accounts for roughly 50 percent of business cycle variation of GDP.”