Working Paper: NBER ID: w12537
Authors: Nir Jaimovich; Sergio Rebelo
Abstract: Aggregate and sectoral comovement are central features of business cycle data. Therefore, the ability to generate comovement is a natural litmus test for macroeconomic models. But it is a test that most existing models fail. In this paper we propose a unified model that generates both aggregate and sectoral comovement in response to contemporaneous shocks and news shocks about fundamentals. The fundamentals that we consider are aggregate and sectoral TFP shocks as well as investment-specific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and a new form of preferences that allow us to parameterize the strength of short-run wealth effects on the labor supply.
Keywords: business cycles; news shocks; aggregate comovement; sectoral comovement
JEL Codes: E24; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| news shocks (G14) | investment (G31) |
| news shocks (G14) | consumption (E21) |
| news shocks (G14) | hours worked (J22) |
| positive news about future productivity (O49) | output (C67) |
| positive news about future productivity (O49) | consumption (E21) |
| weak short-run wealth effects (E21) | labor supply (J20) |
| news shocks (G14) | economic activity (E20) |
| expectations (D84) | labor supply decisions (J22) |