TY  - JOUR
AU  - Christiano,Lawrence J.
AU  - Fisher,Jonas D. M.
TI  - Stock Market and Investment Goods Prices: Implications for Macroeconomics
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10031
PY  - 2003
Y2  - October 2003
UR  - http://www.nber.org/papers/w10031
L1  - http://www.nber.org/papers/w10031.pdf
N1  - Author contact info:
Lawrence Christiano
Department of Economics
Northwestern University
2001 Sheridan Road
Evanston, IL 60208
Tel: 847/491-8231
Fax: 847/491-7001
E-Mail: l-christiano@northwestern.edu

Jonas Fisher
Economic Research Department
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL  60604
Tel: 312/312-8177
Fax: NA
E-Mail: jfisher@frbchi.org
AB  - 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.
ER  -