The theoretical literature on business cycles predicts a positive investment response to productivity improvements, a prediction we question from theoretical and empirical perspectives. We show that a short-term negative response of investment to a positive technology shock is consistent with a reasonably parameterized new Keynesian dynamic stochastic general equilibrium (DSGE) model in which firm-specific capital introduces an additional real rigidity, and monetary policy is not fully accommodative. Employing Bayesian techniques, we provide evidence that permanent productivity improvements have short-term, contractionary effects on investment. Although this result can be obtained from both firm-specific and rental capital models, only in the case of the former is the average price duration in line with the microeconometric evidence. (C) 2011 Elsevier B.V. All rights reserved.
Real rigidities, productivity improvements and investment dynamics / Francesco, Giuli; Tancioni, Massimiliano. - In: JOURNAL OF ECONOMIC DYNAMICS & CONTROL. - ISSN 0165-1889. - 36:1(2012), pp. 100-118. [10.1016/j.jedc.2011.09.002]
Real rigidities, productivity improvements and investment dynamics
TANCIONI, MASSIMILIANO
2012
Abstract
The theoretical literature on business cycles predicts a positive investment response to productivity improvements, a prediction we question from theoretical and empirical perspectives. We show that a short-term negative response of investment to a positive technology shock is consistent with a reasonably parameterized new Keynesian dynamic stochastic general equilibrium (DSGE) model in which firm-specific capital introduces an additional real rigidity, and monetary policy is not fully accommodative. Employing Bayesian techniques, we provide evidence that permanent productivity improvements have short-term, contractionary effects on investment. Although this result can be obtained from both firm-specific and rental capital models, only in the case of the former is the average price duration in line with the microeconometric evidence. (C) 2011 Elsevier B.V. All rights reserved.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.