Business Cycles With A Common Trend in Neutral and Investment-Specific Productivity

Stephanie Schmitt-Grohe and Martín Uribe ()

No 16071, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper identifies a new source of business-cycle fluctuations. Namely, a common stochastic trend in neutral and investment-specific productivity. We document that in U.S. postwar quarterly data total factor productivity (TFP) and the relative price of investment are cointegrated. We show theoretically that TFP and the relative price of investment are cointegrated if and only if neutral and investment-specific productivity share a common stochastic trend. We econometrically estimate an RBC model augmented with a number of real rigidities and driven by a multitude of shocks. We find that in the context of our estimated model, innovations in the common stochastic trend explain a sizable fraction of the unconditional variances of output, consumption, investment, and hours.

JEL-codes: E32 (search for similar items in EconPapers)
Date: 2010-06
Note: EFG
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Citations: View citations in EconPapers (7)

Published as Stephanie Schmitt-Grohe & Martin Uribe. "Business Cycles With A Common Trend in Neutral and Investment-Specific Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics. Volume 14, Issue 1. (January 2011)

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Journal Article: Business Cycles With A Common Trend in Neutral and Investment-Specific Productivity (2011)
Working Paper: Business Cycles With A Common Trend in Neutral and Investment-Specific Productivity (2010)
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