Norges Bank

Working Paper

New perspectives on depreciation shocks as a source of business cycle fluctuations

Author:
by Francesco Furlanetto and Martin Seneca
Series:
Working Paper
Number:
2/2011

Abstract
In this paper we study the transmission for capital depreciation shocks. The existing literature in the Real Business Cycle tradition has concluded that these shocks are irrelevant for business cycle fluctuations. We show that these shocks are potentially important drivers of aggregate fluctuations in a New Keynesian model. Nominal rigidities and some persistence in the shock process are the key ingredients to generate co-movement across real variables.

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ISSN 1502-8190 (online)

Published 25 March 2011 11:00
Published 25 March 2011 11:00