Recent studies …nd that shocks to the marginal e¢ ciency of investment are a main driver of business cycles. Yet, they struggle to explain why consumption co-moves with real variables such as investment and output, which is a typical feature of an empirically recognizable business cycle. In this paper we show that within a conventional business cycle model, rule-of-thumb consumption provides a straightforward explanation of macroeconomic co-movement after a shock to the marginal e¢ ciency of investment.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Rule-of-thumb consumers, productivity and hours Terms of use: Documents in November 2007The Working Papers of Danmarks Nationalbank describe research and development, often still ongoing, as a contribution to the professional debate.The viewpoints and conclusions stated are the responsibility of the individual contributors, and do not necessarily reflect the views of Danmarks Nationalbank.As a general rule, Working Papers are not translated, but are available in the original language used by the contributor.Danmarks Nationalbank's Working Papers are published in PDF format at www.nationalbanken.dk. A free electronic subscription is also available at this Web site.The subscriber receives an e-mail notification whenever a new Working Paper is published. Resumé I dette papir undersøger vi transmissionsmekanismen af produktivitetsstød i en model med tommelfingerregelforbrugere. I litteraturen er denne finansielle friktion kun blevet undersøgt i relation til finanspolitiske stød. Vi viser, at tilstedevaerelsen af tommelfingerregelforbrugere også hjaelper med at forklare nylige empiriske resultater om produktivitetsstød. Tommelfingerregelforbrugere, sammen med nominelle og reale rigiditeter, er vigtige for at reproducere den negative reaktion af arbejdstimer og de forsinkede reaktioner af produktion og forbrug efter et produktivitetsstød. AbstractIn this paper we study the transmission mechanism of productivity shocks in a model with rule-of-thumb consumers. In the literature, this financial friction has been studied only with reference to fiscal shocks. We show that the presence of rule-of-thumb consumers is also very helpful in accounting for recent empirical evidence on productivity shocks. Rule-of-thumb agents, together with nominal and real rigidities, play an important role in reproducing the negative response of hours and the delayed responses of output and consumption after a productivity shockRule-of-thumb consumers, productivity and hours * Francesco Furlanetto † Norges BankMartin Seneca ‡ University of Aarhus and Danmarks Nationalbank November 2007Abstract In this paper we study the transmission mechanism of productivity shocks in a model with rule-of-thumb consumers. In the literature, this financial friction has been studied only with reference to fiscal shocks. We show that the presence of rule-of-thumb consumers is also very helpful in accounting for recent empirical evidence on productivity shocks. Rule-of-thumb agents, together with nominal and...

BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. This publication is available on the BIS website (www.bis.org).

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In this paper we study the transmission for capital depreciation shocks.The existing literature in the Real Business Cycle tradition has concluded that these shocks are irrelevant for business cycle ‡uctuations. We show that these shocks are a potentially important drivers of aggregate ‡uctuations in a New Keynesian model. Nominal rigidities and some persistence in the shock process are the key ingredients to generate co-movement across real variables.