Stock Market and Investment Goods Prices: Implications for Macroeconomics / Lawrence J. Christiano, Jonas D. M. Fisher.

Format:

Book

Author/Creator:

Christiano, Lawrence J.

Contributor:

National Bureau of Economic Research.

Fisher, Jonas D. M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10031.

NBER working paper series no. w10031

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Stock Market and Investment Goods Prices

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

Stock market prices, a measure of the marginal cost of installed capital, are procyclical. Yet, prices of investment goods, the main input into new installed capital, are countercyclical. We exploit this information to identify the driving forces of the business cycle and the nature of capital installation costs. In our model installation costs are increasing in the growth of investment, and the business cycle is driven by permanent investment-specific technology shocks and transitory neutral technology shocks. When calibrated to the capital price observations, the model does well at accounting for the main features of asset returns and the business cycle of macroeconomic aggregates. In addition, unlike most other models, our's accounts for sectoral comovement in both output and factor inputs.

Notes:

Print version record

October 2003.