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Investment Shocks: the Labour Wedge and the Comovement Problem

Research output: Working paper

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Standard

Investment Shocks: the Labour Wedge and the Comovement Problem. / Caswell, Benjamin.
Lancaster: Lancaster University, Department of Economics, 2021. (Economics Working Papers Series).

Research output: Working paper

Harvard

Caswell, B 2021 'Investment Shocks: the Labour Wedge and the Comovement Problem' Economics Working Papers Series, Lancaster University, Department of Economics, Lancaster.

APA

Caswell, B. (2021). Investment Shocks: the Labour Wedge and the Comovement Problem. (Economics Working Papers Series). Lancaster University, Department of Economics.

Vancouver

Caswell B. Investment Shocks: the Labour Wedge and the Comovement Problem. Lancaster: Lancaster University, Department of Economics. 2021 Aug 31. (Economics Working Papers Series).

Author

Caswell, Benjamin. / Investment Shocks : the Labour Wedge and the Comovement Problem. Lancaster : Lancaster University, Department of Economics, 2021. (Economics Working Papers Series).

Bibtex

@techreport{35c618f01cde4961a7b9db540f186e2b,
title = "Investment Shocks: the Labour Wedge and the Comovement Problem",
abstract = "Shocks to the marginal efficiency of investment (MEI) play a significant role in business cycle fluctuations. However, in standard quantitative models, positive (negative) MEI shocks tend to cause consumption to fall (rise) on impact while investment rises (falls). This conflicts with the well-established observation that consumption and investment are both procyclical and move together over the business cycle. This paper demonstrates that MEI shocks can generate positive comovement between consumption and investment in a standard RBCframework through the inclusion of a time-varying labour wedge. This allows for tractable analytical expressions, and straightforward graphical interpretations, which describe the subset of the parameter space where positive comovement is achieved. ",
keywords = "comovement problem, investment shocks, labour wedge, business cycles",
author = "Benjamin Caswell",
year = "2021",
month = aug,
day = "31",
language = "English",
series = "Economics Working Papers Series",
publisher = "Lancaster University, Department of Economics",
type = "WorkingPaper",
institution = "Lancaster University, Department of Economics",

}

RIS

TY - UNPB

T1 - Investment Shocks

T2 - the Labour Wedge and the Comovement Problem

AU - Caswell, Benjamin

PY - 2021/8/31

Y1 - 2021/8/31

N2 - Shocks to the marginal efficiency of investment (MEI) play a significant role in business cycle fluctuations. However, in standard quantitative models, positive (negative) MEI shocks tend to cause consumption to fall (rise) on impact while investment rises (falls). This conflicts with the well-established observation that consumption and investment are both procyclical and move together over the business cycle. This paper demonstrates that MEI shocks can generate positive comovement between consumption and investment in a standard RBCframework through the inclusion of a time-varying labour wedge. This allows for tractable analytical expressions, and straightforward graphical interpretations, which describe the subset of the parameter space where positive comovement is achieved.

AB - Shocks to the marginal efficiency of investment (MEI) play a significant role in business cycle fluctuations. However, in standard quantitative models, positive (negative) MEI shocks tend to cause consumption to fall (rise) on impact while investment rises (falls). This conflicts with the well-established observation that consumption and investment are both procyclical and move together over the business cycle. This paper demonstrates that MEI shocks can generate positive comovement between consumption and investment in a standard RBCframework through the inclusion of a time-varying labour wedge. This allows for tractable analytical expressions, and straightforward graphical interpretations, which describe the subset of the parameter space where positive comovement is achieved.

KW - comovement problem

KW - investment shocks

KW - labour wedge

KW - business cycles

M3 - Working paper

T3 - Economics Working Papers Series

BT - Investment Shocks

PB - Lancaster University, Department of Economics

CY - Lancaster

ER -