Business Cycles, Investment Shocks, and the "Barro-King" Curse

Abstract

We are grateful to Jean-Gardy Victor for capable research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Business-Cycle Anatomy

“…This property originates in the problem first highlighted by Barro and King (1984) and would have been even sharper if it were not for the following three model ingredients: time-nonseparable preferences, sticky prices, and a monetary policy that induces an expansion relative to flexible prices. Most of the existing attempts to fix the negative comovement problem maintain all three ingredients (Furlanetto, Natvik, and Seneca 2013;Ascari, Phaneuf, and Sims 2016). Molavi (2019) maintains the last two of them, sticky prices and accommodative monetary policy, but adds a belief-based mechanism that, at least in principle, appears to have the potential of generating the requisite comovement even with flexible prices.…”

Applications of DSGE Models in Central Banking: Key Issues Explored During Research Workshop of the National Bank of Ukraine

“…Mr. Ascari then presented two applications of a state-ofthe-art medium-scale New Keynesian DSGE model (in the spirit of Christiano et al (2005) or Smets and Wouters (2007): "Business cycles, investment shocks, and the 'Barro-King' curse" (Ascari et al, 2016) and "On the welfare and cyclical implications of moderate trend inflation" (Ascari et al, 2015).…”

Investment Shocks, Consumption Puzzle, and Business Cycles

“…The fundamental transmission mechanism of the investment shock to the economy hinges on monopolistic competition with sticky prices and wages. Other studies use another set of frictions and assumptions to deliver the positive response of consumption: Special type of capital utilization (e.g., Greenwood, Hercowitz, and Huffman ; Khan and Tsoukalas ); roundabout production (firm networking) and trend output growth (e.g., Ascari, Phaneuf, and Sims ); rule‐of‐thumb consumers (e.g., Furlanetto, Natvik, and Seneca ); nonseparability between consumption and hours worked (e.g., Furlanetto and Seneca ). Despite the use of the various model assumptions, the cornerstone of the models used in the previous studies is a standard New Keynesian model with different types of frictions.…”

“…To be consistent with the type of data used for Bayesian estimation in Section III, I use log‐differenced variables to compute correlation coefficients. Ascari, Phaneuf, and Sims () use the same type of variables to calculate correlation coefficients. I simulate the models to generate 5,000 time series with 280 observations each, which is the same length as the actual data, and compute the mean correlation coefficients.…”