TY  - JOUR
AU  - Schmitt-Grohé,Stephanie
AU  - Uribe,Martín
TI  - Business Cycles With A Common Trend in Neutral and Investment-Specific Productivity
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16071
PY  - 2010
Y2  - June 2010
UR  - http://www.nber.org/papers/w16071
L1  - http://www.nber.org/papers/w16071.pdf
N1  - Author contact info:
Stephanie Schmitt-Grohe
Department of Economics
Columbia University
New York, NY 10027
Tel: 212/854-8059
Fax: 212/854-4010
E-Mail: stephanie.schmittgrohe@columbia.edu

Martin Uribe
Department of Economics
Columbia University
International Affairs Building
New York, NY 10027
Tel: 212 851 4008
Fax: 212 854 8059
E-Mail: martin.uribe@columbia.edu
AB  - This paper identifies a new source of business-cycle fluctuations. Namely, a common stochastic trend in neutral and investment-specific productivity.  We  document that in U.S. postwar quarterly data  total factor productivity (TFP) and the relative price of investment are cointegrated. We show theoretically that TFP and the relative price of investment are cointegrated if and only if neutral and investment-specific productivity share a common stochastic trend.  We econometrically estimate an RBC model augmented with a number of real rigidities  and driven by a multitude of shocks. We  find that in the context of our estimated model, innovations in the common stochastic trend explain a sizable fraction of the unconditional  variances of output, consumption, investment, and hours.
ER  -