Investment-Specific Technology Shocks and Consumption

Francesco Furlanetto, Martin Seneca
2010 Social Science Research Network  
Modern business cycle models systematically underestimate the correlation between consumption and investment. One reason for this failure is that, generally, positive investment-speci...c technology shocks induce a negative consumption response. The objective of this paper is to investigate whether a positive consumption response to investment-speci...c technology shocks can be obtained in a modern business cycle model. We ...nd that the answer to this question is yes. With a combination of
more » ... nal rigidities and nonseparable preferences, the consumption response is positive for very general parameterisations of the model.
doi:10.2139/ssrn.1735427 fatcat:abvqshkjtvdnzki2libocwtduu