The role of investment-specific technology shocks in driving international business cycles: a bayesian approach.

Dey, Jaya (2013): The role of investment-specific technology shocks in driving international business cycles: a bayesian approach.

Abstract

This paper uses a Bayesian approach to estimate a standard international real business cycle model augmented with preferences with zero wealth-effect, variable capacity utilization and investment adjustment costs. First, I find that the bulk of fluctuations in country-specific outputs, consumption, investments, and international relative prices are attributed to country-specific neutral technology, investment-specific technology and preference shocks. Second, my estimated model with economically meaningful shocks simultaneously accounts for the negative correlation between the real exchange rate and relative consumption, and the negative correlation between the terms of trade and relative output. Lastly, by using marginal likelihood comparison exercise, I find that the success of the model depends on preferences with zero wealth effects; other frictions and alternative asset market structures play a less important role.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bayesian; investment-specific technology; real exchange rate
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C11 - Bayesian Analysis: General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics

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