Investment-Specific Technology Shocks and International Business Cycles: An Empirical Assessment
Federico S. Mandelman, Pau Rabanal, Juan F. Rubio-Ramírez, and Diego Vilán
Working Paper 2010-3a
In this paper, we first introduce investment-specific technology (IST) shocks to an otherwise standard international real business cycle model and show that a thoughtful calibration of them along the lines of Raffo (2009) successfully addresses the "quantity," "international comovement," "Backus-Smith," and "price" puzzles. Second, we use OECD data for the relative price of investment to build and estimate these IST processes across the United States and a "rest of the world" aggregate, showing that they are cointegrated and well represented by a vector error correction model (VECM). Finally, we demonstrate that when we fit such estimated IST processes in the model instead of the calibrated ones, the shocks are actually not as powerful to explain any of the four mentioned puzzles.
JEL classification: E32, F32, F33, F41
Key words: international business cycles, cointegration, investment-specific technology shocks
The authors gratefully acknowledge Jesper Lindé, Martín Uribe and seminar participants at SCIEA at the Federal Reserve Bank of Dallas for very helpful comments and suggestions. They also thank the National Science Foundation for financial support. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta, the Federal Reserve System, or the International Monetary Fund. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Federico Mandelman, Federal Reserve Bank of Atlanta, Research Department, 1000 Peachtree Street, N.E. Atlanta, GA 30309-4470, firstname.lastname@example.org; Pau Rabanal, IMF, Research Department, 700 19th Street, N.W., Washington, DC 20431, email@example.com; Juan F. Rubio-Ramírez, Duke University, Federal Reserve Bank of Atlanta, and FEDEA, 213 Social Sciences Building, P.O. Box 90097, Durham, NC 27708-0097, firstname.lastname@example.org; or Diego Vilán, University of Southern California, 3620 South Vermont Avenue, Kaprielian Hall 300, Los Angeles, CA 90089-0253, email@example.com.
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