Working Paper: NBER ID: w20550
Authors: Paul Beaudry; Alban Moura; Franck Portier
Abstract: The cyclical behavior of the relative price of investment goods plays an important role in many modern macroeconomic models. In this paper we examine the behavior of several measures of the relative price of investment goods for the U.S. economy over the last fifty years. In particular, we examine whether there are robust cyclical patterns, whether results differ by sub-sample and whether the nature of the deflator matters. Our main result is that there is no robust evidence that this relative price is countercyclical in the data. In fact, for the recent (post-Volcker) period, the relative price of investment appears predominantly procyclical. When looking at more disaggregated series, most measures are procyclical, a few acyclical, and only the price of equipment is significantly countercyclical for some periods and measures. The procyclical behavior of the relative price of aggregate investment is also shown to characterize six other countries of the G7.
Keywords: Cyclical behavior; Relative price of investment; Macroeconomic models
JEL Codes: E3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cyclical behavior of the relative price of investment (E32) | economic cycles (E32) |
| economic cycles (E32) | cyclical behavior of the relative price of investment (E32) |
| investment-specific technological shocks (O39) | investment fluctuations (G31) |
| cyclical behavior of the relative price of investment (E32) | business cycle indicators (E32) |
| business cycle indicators (E32) | cyclical behavior of the relative price of investment (E32) |