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Investment-Specific Technology Shocks and Recursive Preferences

Author

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  • Hakon Tretvoll

    (BI Norwegian Business School)

Abstract
Investment-specific technology (IST) shocks have been shown to play a significant role in explaining the business cycle dynamics of the US economy. Recently a debate has arisen over the extent to which these shocks aid our understanding of international business cycles as well. This paper presents an international business cycle model where agents have recursive preferences, and shows that this specification of preferences plays a crucial role for the impact of IST shocks on the joint dynamics of international prices and quantities. The most striking result is that the model generates real exchange rate fluctuations that exhibit both a high volatility relative to output and are uncorrelated with relative consumptions across countries.

Suggested Citation

  • Hakon Tretvoll, 2013. "Investment-Specific Technology Shocks and Recursive Preferences," 2013 Meeting Papers 1207, Society for Economic Dynamics.
    • Handle: RePEc:red:sed013:1207
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    References listed on IDEAS

    as
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