Norges Bank

Working Paper

Investment-specific technology shocks and consumption

Author:
Francesco Furlanetto and Martin Seneca
Series:
Working Paper
Number:
30/2010

Abstract
Current business cycle models systematically underestimate the correlation between consumption and investment. One reason for this failure is that a positive investment-specific technology shock generally induces a negative consumption response. The objective of this paper is to investigate whether positive consumption responses to investment-specific technology shocks can be obtained in a modern business cycle model. We find that the answer to this question is yes. With a combination of nominal rigidities and non-separable preferences, the consumption response is positive for general parameterisations of the model.

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ISSN 1502-8190 (online)

Published 22 December 2010 08:51
Published 22 December 2010 08:51