THE ROLE OF INVESTMENT-SPECIFIC TECHNOLOGY SHOCKS IN DRIVING INTERNATIONAL BUSINESS CYCLES: A BAYESIAN APPROACH. (21st November 2016)

• Record Type: Journal Article
• Authors: Dey, Jaya
• Is Part Of: Macroeconomic dynamics. Volume 21:Number 3(2017)
• Page Start: 555
• Page End: 598
• Publication Date: 2016-11-21
• Subjects: Bayesian, -- Investment-Specific Technology, -- Real Exchange Rate; Macroeconomics -- Periodicals; 339.05
• DOI: 10.1017/S1365100515000413
• Languages: English
• ISSNs: 1365-1005

Abstract

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 can be 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. Last, through a 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.