The Federal Reserve Board eagle logo links to Board's home page

International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Interpreting Investment-Specific Technology Shocks
Luca Guerrieri, Dale Henderson, and Jinill Kim
2010-1000  (June 2010)

Abstract:  Investment-specific technology (IST) shocks are often interpreted as multi-factor productivity (MFP) shocks in a separate investment-producing sector. However, this interpretation is strictly valid only when some stringent conditions are satisfied. Some of these conditions are at odds with the data. Using a two-sector model whose calibration is based on the U.S. Input-Output Tables, we consider the implications of relaxing several of these conditions. In particular, we show how the effects of IST shocks in a one-sector model differ from those of MFP shocks to an investment-producing sector of a two-sector model. Importantly, with a menu of shocks drawn from recent empirical studies, MFP shocks induce a positive short-run correlation between consumption and investment consistent with U.S. data, while IST shocks do not.

Full paper (282 KB PDF) | Full paper (screen reader version)

Keywords
DSGE models, multi-factor productivity shocks, investment-specific technology shocks

PDF files: Adobe Acrobat Reader   ZIP files: PKWARE

Home | IFDPs | List of 2010 IFDPs
Accessibility | Contact Us
Last update: July 16, 2010