English, Article, Journal or magazine article edition: Firm-Specific Capital, Productivity Shocks and Investment Dynamics Francesco Giuli; Massimiliano Tancioni

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Bookmark: http://trove.nla.gov.au/version/69200
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Firm-Specific Capital, Productivity Shocks and Investment Dynamics
Author
  • Francesco Giuli
  • Massimiliano Tancioni
Physical Description
  • preprint
Notes
  • The theoretical literature on business cycles predicts a positive investment response to productivity improvements. In this work we question this prediction from theoretical and empirical standpoints. We first show that a negative short-term response of investment to a positive technology shock is consistent with a plausibly parameterized new Keynesian DSGE model in which capital is firm-specific and monetary policy is not fully accommodative. Employing Bayesian techniques, we then provide evidence that permanent productivity improvements have short-term contractionary effects on investment. Even if this result emerges in both the firm-specific and rental capital specifications, only with the former the estimated average price duration is in line with microeconometric evidence. In the firm-specific capital model, strategic complementarity in price setting leads to a degree of price inertia which is higher than that implied by the frequency at which firms change their prices.
  • firm-specific capital, NK-DSGE model, technology shocks, investment dynamics, Bayesian inference.
  • RePEc:sap:wpaper:120
Language
  • English
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