Firm-Specific Capital, Productivity Shocks and Investment Dynamics

Giuli, Francesco and Tancioni, Massimiliano (2009) Firm-Specific Capital, Productivity Shocks and Investment Dynamics. Working Paper. Dipartimento di Economia Pubblica, Università di Roma La Sapienza, Roma, Italia.


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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.

Item Type: Monograph (Working Paper)
Additional Information: JEL CLASSIFICATION: E32, E22, C1
Uncontrolled Keywords: firm-speci c capital, NK-DSGE model, technology shocks, investment dynamics, Bayesian inference.
Subjects: 300 Scienze sociali > 330 Economia
Depositing User: Dipartimento economia e diritto
Date Deposited: 21 May 2009
Last Modified: 20 May 2010 12:02

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