Interpreting shocks to the relative price of investment with a two-sector model

Luca Guerrieri, Dale Henderson, Jinill Kim

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

Consumption and investment comove over the business cycle in response to shocks that permanently move the price of investment. The interpretation of these shocks has relied on standard one-sector models or on models with two or more sectors that can be aggregated. We show that the same interpretation can also be motivated with a model that captures key features of the US Input–Output Tables and cannot be aggregated into a standard one-sector model. Our alternative model yields a closer match to the empirical evidence of positive comovement for consumption and investment subject shocks that permanently move the price of investment.

Original languageEnglish
Pages (from-to)82-98
Number of pages17
JournalJournal of Applied Econometrics
Volume35
Issue number1
DOIs
Publication statusPublished - 2020 Jan 1

Bibliographical note

Funding Information:
The views expressed in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System or of any other person associated with the Federal Reserve System. Jinill Kim acknowledges that his work was supported by a Korea University Grant (K1910621) and by the National Research Foundation of Korea Grant. The authors have no conflict of interest related to the work presented in this article. We are grateful to Christopher Gust for many useful conversations. We are also indebted to Jonathan Wright (our Editor), and to Susanto Basu, John Fernald, Jonas Fisher, and Miles Kimball. Replication codes are available from: http://www.lguerrieri.com/rep_codes_1018.zip.

Funding Information:
The views expressed in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System or of any other person associated with the Federal Reserve System. Jinill Kim acknowledges that his work was supported by a Korea University Grant (K1910621) and by the National Research Foundation of Korea Grant. The authors have no conflict of interest related to the work presented in this article. We are grateful to Christopher Gust for many useful conversations. We are also indebted to Jonathan Wright (our Editor), and to Susanto Basu, John Fernald, Jonas Fisher, and Miles Kimball. Replication codes are available from: http://www.lguerrieri.com/rep_codes_1018.zip .

Publisher Copyright:
© 2019 John Wiley & Sons, Ltd.

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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