Working Paper: NBER ID: w15570
Authors: Alejandro Justiniano; Giorgio E. Primiceri; Andrea Tambalotti
Abstract: We study the driving forces of fluctuations in an estimated New Neoclassical Synthesis model of the U.S. economy with several shocks and frictions. In this model, shocks to the marginal efficiency of investment account for the bulk of fluctuations in output and hours at business cycle frequencies. Imperfect competition and, to a lesser extent, technological frictions are the key to their transmission. Labor supply shocks explain a large fraction of the variation in hours at very low frequencies, but are irrelevant over the business cycle. This is important because their microfoundations are widely regarded as unappealing.
Keywords: Investment shocks; Business cycles; Neoclassical synthesis; Macroeconomics
JEL Codes: C11; E3; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| investment shocks (E22) | output (C67) |
| investment shocks (E22) | hours (C41) |
| investment shocks (E22) | investment (G31) |
| neutral technology shocks (E39) | output (C67) |
| neutral technology shocks (E39) | consumption (E21) |
| neutral technology shocks (E39) | hours (C41) |
| labor supply shocks (J20) | hours (C41) |
| labor supply shocks (J20) | business cycles (E32) |