Working Paper: NBER ID: w13444
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: No keywords provided
JEL Codes: E3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| contemporaneous shocks (E32) | aggregate and sectoral comovement (E19) |
| news shocks (G14) | aggregate and sectoral comovement (E19) |
| weak short-run wealth effects on labor supply (H31) | comovement (C10) |
| good news about future productivity (O49) | increased investment and labor supply today (J20) |
| increased investment and labor supply today (J20) | expansion in output and consumption (E20) |
| expectations of higher future productivity (O49) | current increases in labor supply and investment (J20) |
| negative expectations about future productivity (E24) | recessions (E32) |