Decomposing the Cyclical Movements in the Real Price of Equipment

oleh: Kwang Hwan Kim

Format: Article
Diterbitkan: Korea Institute for International Economic Policy 2009-06-01

Deskripsi

This paper raises warning flags about the current use of the real price of equipment as the driving process for investment-specific technology in the Real-Business-Cycle (RBC) model. Using a structural VAR approach, this paper finds that a significant fraction of the real price of equipment is accounted for by other shocks besides investment-specific technology shocks (I-shocks). This finding indicates that the current RBC models which use the real price of equipment as the driving process of investment-specific technology might overstate the contribution of I-shocks to economic fluctuations.