Markup Variation and Endogenous Fluctuations in the Price of Investment Goods

Transcription

1 Markup Varaon and Endogenous Fluuaons n he Pre of Invesmen Goods Max Floeoo Sanford Unversy Nr Jamovh Sanford Unversy and NBER February 2009 Seh Pru Federal Reserve Board of Governors Absra The wo seor model presened n hs noe suggess a smple sruural deomposon of movemens n he pre of nvesmen goods no exogenous and endogenous soures. The endogenous fluuaons arse n he presene of ounerylal markups whh vary dfferenly aross he onsumpon and nvesmen seors. In urn, he movemens n he markups are due o endogenous proylal ne busness formaon. The model, whle beng onssen wh he ounerylaly of he pre of nvesmen goods, suggess ha abou a quarer of he movemen n he pre seres an be arbued o hs endogenous mehansm. Keywords: pre of nvesmen, busness yle, frm dynams, markup JEL odes: E32, L11, L16 Frs verson: May maxf@sanford.edu njamo@sanford.edu seh.j.pru@frb.gov

2 1 Inroduon I s well known ha he pre of nvesmen goods has been rendng down over he las enury n he US (see for example Greenwood, Herowz, and Krusell (2000) and Cummns and Volane (2002)). I has been argued ha hs delne aouns for a sgnfan fraon of eonom growh durng ha perod. For nsane, Greenwood and Krusell (2007) onlude ha more han half of poswar growh an be arbued o nvesmen-spef ehnologal progress. Reen work fouses on he ylal properes of hs pre seres and has emphaszed ha n he US () he pre of nvesmen goods s ounerylal, and ha () fluuaons n nvesmenspef ehnologal progress (he nverse of he pre of nvesmen goods n many models) onrbue sgnfanly o poswar US busness yles. For example, Greenwood, Herowz, and Krusell (2000) suggess ha hs form of ehnologal hange s he soure of abou 30% of oupu fluuaons. Smlarly, Fsher (2006) and Jusnano and Prmer (2006) argue ha nvesmenspef ehnologal progress s he mos mporan deermnan of oupu varably. Movaed by hs evdene, we nvesgae ylal fluuaons n he pre of nvesmen goods ha an be arbued o endogenous movemens. Spefally, hs noe sudes he role of seor spef ounerylal markups n gvng rse o endogenous movemens n he pre of nvesmen goods. Prevous work has alluded o he poenal role of markup varaons n generang movemens n he pre of nvesmen goods. For example, Ramey (1996) suggess ha a delne n markups mgh have parally aused he relave pre of nvesmen o fall over he poswar perod. Smlarly, Fsher (2006) pons ou ha whle nvesmen-spef ehnology shoks ould play a key role n shor-run fluuaons, he shor-run orrelaons mgh be drven a leas parly by faors oher han ehnologal hange, suh as me-varyng markups. The approah aken here s relaed o a leraure followng Hall (1986) whh suggess ha measured Toal Faor Produvy (TFP) has mporan endogenous omponens. 1 As hs leraure has emphaszed, he presene of endogenous omponens an lead a researher o overesmae he varane of TFP shoks. 2 In he same spr, we propose a mehansm ha gves rse o endogenous 1 See, for example, Hall (1988), Hall (1990), as well as Basu and Fernald (2002). 2 Smlarly, Km (2006) fnds ha nvesmen-spef ehnology shoks are Granger-aused by varables used n Evans (1992) s analogous fndng for Solow resduals. 1

3 movemens n he pre of nvesmen goods, and hen quanfy s onrbuon o he ylaly of nvesmen good pres. Spefally, Seon 2 presens a wo-seor dynam general equlbrum model ha bulds upon he framework of Jamovh and Floeoo (2008). 3 There, a posve shok o he level of ehnology leads o hanges n he number of ompeors, whh n urn gve rse o ounerylal varaons n markups. By exendng hs framework o a wo-seor seup we an derve a smple analyal haraerzaon of he pre of nvesmen goods. We show ha hs pre s posvely relaed o he rao beween he markup n he nvesmen and onsumpon seor. The households desre o smooh onsumpon mples, as s ommon n hs lass of models, ha nvesmen s muh more volale han onsumpon. Hene, he proess of frm enry and ex s more volale n he nvesmen good seor whh n urn mples a relavely bgger movemen n he markup of he nvesmen han n he onsumpon seor. Counerylal movemens n he pre of nvesmen goods are hus endogenously generaed by he model. Our model suggess ha a quarer of he movemen n he pre of nvesmen goods an be arbued o he endogenous fluuaons as shown n Seon 3. Seon 4 llusraes ha he model an quanavely aoun for he ounerylaly of he pre of nvesmen goods. In he onex of our model, endogenous fluuaons n seoral markups are neessary o mah hs feaure of he daa. 2 Tehnology and Marke Sruure Ths noe proposes a smple model ha represens a mnmal perurbaon of he prooype perfe ompeon wo seor real busness yle (RBC) model. Ths grealy smplfes omparson wh exsng work and allows for a smple sruural deomposon of he pre of nvesmen goods. The model s a wo-seor verson of he model n Jamovh and Floeoo (2008). There are wo seors of produon: onsumpon and nvesmen. Whn eah perod, apal and labor an be oslessly realloaed from one seor o he oher. The seup of he onsumpon seor wll be presened n some deal and he nvesmen seor s exaly analogous. 3 Prevous work on wo-seor neolassal models nludes, among ohers, Long and Plosser (1983), Baxer (1996), Hornsen and Prashnk (1997), Huffman and Wynne (1999), and Harrson (2003). 2

4 The Consumpon Seor. The seoral good s produed wh a onsan-reurns-o-sale produon funon, whh aggregaes a measure one onnuum of ndusral goods [ 1 C = Q (j) dj] 1 ω ω, ω (0, 1) 0 where Q (j) denoes oupu of ndusry j. The elasy of subsuon beween any wo ndusral 1 goods s onsan and equals 1 ω. The onsumpon good produers behave ompevely. In eah of he onsumpon ndusres, here are N frms produng dfferenaed nermedae goods. A CES funon aggregaes hose o yeld he oupu of ndusry j N 1 τ Q (j) = (N ) 1 1 τ x (j, ) τ, τ (0, 1) (1) =1 where x (j, ) s he oupu of frm n ndusry j. 4 The elasy of subsuon beween any wo 1 goods whn an ndusry s onsan and equals 1 τ. The marke sruure of eah ndusry exhbs monopols ompeon; eah dfferenaed x (j, ) s produed by one frm ha ses he pre for s good o maxmze profs. Fnally, s assumed ha he elasy of subsuon beween any wo goods whn an ndusry s hgher han he elasy of subsuon aross ndusres, 1 1 ω < 1 1 τ. Eah nermedae good, x (j, ), s produed usng apal, k (j, ), and labor, h (j, ) gven a level of ehnology z, x (j, ) = z k (j, ) α h (j, ) 1 α φ, α [0, 1] (2) where he parameer φ > 0 represens an overhead os. In eah perod, an amoun φ of he nermedae good s mmedaely used up, ndependen of how muh oupu s produed. As n Roemberg and Woodford (1996) he role of hs parameer s o allow he model o reprodue he apparen absene of pure profs despe he presene of marke power. Enry no he exsng ndusres s osless for nermedae produers, and hene a zero-prof ondon s sasfed n eah perod and every ndusry. We assume ha he log ehnology shoks follow a saonary frs order auo-regressve proess ln z = ζ ln z 1 + ε (3) 4 The erm N 1 1 τ n (1) mples ha here s no varey effe n he model. Ths allows us o solae he effe of markup varaons on he pre of nvesmen goods. 3

5 I s assumed ha ζ < 1, and ha ε s a normally dsrbued random varable, wh a mean of zero and sandard devaon σ ε. The seoral good produer solves a sa opmzaon problem ha resuls n he usual ondonal demand for eah ndusral good, Q (j), where p (j) s he pre ndex of ndusry j a perod and P s he pre of he onsumpon good a perod, Q (j) = P = [ p (j) P [ 1 0 ] 1 ω 1 C (4) ] ω 1 p (j) ω ω ω 1 dj. (5) Denong he pre of good n ndusry j n perod by p (j, ), he ondonal demand faed by he produer of eah x (j, ) varan s smlarly defned as x (j, ) = [ ] 1 p (j, ) τ 1 p (j) N Q (j) N p (j) = (N ) 1 1 τ p (j, ) τ =1 τ 1 τ 1 τ. (6) Usng (4) and (6), he ondonal demand for good x (j, ) a perod an hen be expressed n erms of he onsumpon good as x (j, ) = [ ] 1 p (j, ) p (j) τ 1 [ p (j) P ] 1 ω 1 C N. The Elasy of Demand. In he model above, here s a onnuum of ndusres whn eah seor, bu whn eah ndusry he number of operang frms s fne. Whle an ndvdual frm s desons have no effe on he general pre level P, hey do affe he ndusral pre level p (j). The resulng pre elasy of demand s hen a funon of he number of frms whn a ndusry, N. In a symmer equlbrum, he elasy beomes η x (j,)p (j,)(n ) = 1 τ 1 + [ 1 ω 1 1 τ 1 ] 1 N (7) mplyng ha an nrease n N leads o a more elas demand urve. A he soluon o he monopols frm s problem, margnal revenue equals margnal os p (j, ) MC (j, ) = µ (N ) = (1 ω)n (τ ω) τ(1 ω)n > 1. (8) (τ ω) 4

6 Noe ha he markup funon s monoonally dereasng n he number of frms,.e. dµ dn < 0. We assume ha he eonomy s ehnology s symmer wh respe o all nermedae npus and hene we fous on symmer equlbra, (j, ) [0, 1]x[1, N ] : x (j, ) = x, k (j, ) = k, h (j, ) = h, p (j, ) = p, N (j) = N. Toal apal and hours n he onsumpon seor are hen gven by K = N k and H = N h respevely. Fnally, n he symmer equlbrum, a zero-prof ondon s mposed n every seor n every perod mplyng ha varable profs over he fxed os n eah perod (µ 1) x = φ. (9) The number of frms per ndusry and aggregae fnal onsumpon an hen be found by usng (2) and he zero-prof ondon (9). 5 N = z ( K H ) α H [ ] µ 1 µ φ (10) C = z µ ( K H ) α H. (11) We use P as he numerare and se o 1. Ths mples ha he pre harged by an nermedae produer n he onsumpon seor s also 1 n a symmer equlbrum. The Invesmen Seor. The seup n he nvesmen good seor s analogous o he onsumpon seor. There s a onnuum of ndusres, eah wh a fne number N of nermedae produers. The nvesmen good, he ndusral goods, and he dfferenaed goods are hus produed aordng o I = Q (j) = ( N ) 1 1 τ [ 1 Q (j) dj] 1 ω ω, ω (0, 1) 0 N x (j, ) τ =1 1 τ, τ (0, 1) x (j, ) = z k (j, ) α h (j, ) 1 α φ, α [0, 1]. The soluon o he opmzaon problem leads o an analogous expresson for he markup harged n he nvesmen seor µ (N ) = (1 ω)n (τ ω) τ(1 ω)n (τ ω) > 1. Toal apal and hours n he 5 Mulply (2) wh N and use he zero-prof ondon o plug n for x. In order o fnd C, mulply (10) by x and use he zero-prof ondon agan. 5

7 nvesmen seor are gven by K = N k and H = N h respevely. The zero-prof ondon holds n every seor n every perod, ( µ 1 ) x = φ, whh as above allows us o derve he number of frms per seor and aggregae nvesmen N = z I = z µ ( K H ( K H ) α [ ] µ H 1 µ ) φ α H. (12) The Pre of Invesmen. In hs eonomy apal and labor are moble aross seors and ndusres. In equlbrum, faor pres have o be equalzed n he onsumpon and nvesmen seor. z µ ( k (1 α) z µ ( k α h h ) α = W = P z µ ) α 1 = R = P z µ α ( ) k α (1 α) (13) h ( ) k α 1 (14) Ths allows us o derve a smple expresson for he pre of nvesmen by solvng (13) or (14) ( ) ( ) ( ) for he pre of nvesmen goods P z = µ k α ( ) k α. z µ h h Ths, however, an be smplfed furher by ombnng (13) and (14) whh yelds he well known resul ha he apal labor rao s he same n boh ndusres, k h h = k. The pre of nvesmen hen beomes h ( ) ( ) z P = µ. (15) z The frs erm s sandard: when produvy n he nvesmen seor nreases relave o he onsumpon seor, nvesmen goods beome heaper n erms of onsumpon goods. The seond erm, however, s a resul of he parular seoral sruure ha we have assumed. When he nvesmen seor beomes more ompeve relave o he onsumpon seor,.e. µ µ µ falls, he pre of nvesmen falls. Ths equaon s he bass of our quanave exerse n he nex seon. 3 Deomposng he Pre of Invesmen Usng a rumflex o denoe log devaons from he seady sae, (15) an be expressed as ˆp = ˆµ ˆµ + ẑ ẑ. (16) 6

8 Whle he pre of nvesmen s observable, all erms on he rgh hand sde of he equaon are laen. However, he model s equlbrum ondons mply ha we an express ˆµ and ˆµ as funons of observable daa. Takng he onsumpon seor as an example, one an derve ha ( ) ˆµ = 1 τ µ τ µ ĉ or ˆµ = Aĉ. 6 Togeher wh he equvalen expresson for he nvesmen seor, Bî, we an resae (16) as ˆp = Bî Aĉ + ẑ ẑ. (17) Our sruural deomposon bulds on equaon (17) as we an express he varane n he pre of nvesmen goods as Var(ˆp ) = Var(Bî Aĉ ) + Var(ẑ ẑ ) + 2 Cov(Bî Aĉ, ẑ ẑ ). (18) Calbrang he salars A and B. Noe ha four parameers µ µ, τ and τ are requred o assgn values o A and B. Frs, here s, o he bes of our knowledge, no lear evdene on he average sze of markups n eah of he seors. Smlar o Jamovh and Floeoo (2008), we albrae he seady sae value of he value added markup o 1.3 n boh seors. Seond, we have o hoose values for τ and τ, he parameers ha deermne he elasy of subsuon beween dfferenaed goods n he onsumpon and nvesmen seor. We albrae hese parameers as follows. Takng he onsumpon seor as an example, use (8) o fnd N = ( τ ω ) µ 1 1 ω τ µ 1. Log lnearzaon hen leads o an expresson for he elasy of he number of frms wh respe o ha seor s oupu, ( ) 1 τ ˆn = τ (µ ĉ. (19) 1) Usng hs expresson, daa on ˆn and ĉ as well as our albraon of µ, we an esmae τ from he elasy of he number of frms n he onsumpon seor wh respe o he seor s oupu. 7 Ths esmaon requres me seres of he number of operang frms n he onsumpon and nvesmen seor. As our measure of he number of ompeors we use he number of esablshmens n hreen non-agrulural major ndusry groups (referred o as superseors ) runnng 6 Use he equlbrum ondons of he model o show ha C ( (τ µ ) 1)(1 ω ) = φ (τ ω ) and log lnearze. 7 The equvalen expresson n he nvesmen seor s ˆn = î. 1 τ τ (µ 1) 7

9 over 1992:3 2007:2 from he BLS Busness Employmen Dynams daabase. 8 We wegh eah ndusry group by s average share of annual payrolls as alulaed n daa from he Small Busness Admnsraon (SBA). 9 We hen dvde he major ndusry groups no onsumpon and nvesmen seors by modfyng he proedure of Harrson (2003): usng BEA Inpu-Oupu Use ables, we deermne he share of eah major ndusry group s produ gong owards onsumpon or nvesmen. 10 Ths proedure provdes us wh a quarerly me seres of esablshmens n he onsumpon and he nvesmen seor, N and N ; for more deals on he daa onsruon, please refer o he daa appendx A. 11 We now esmae he elases n (19) and he analogous expresson for he nvesmen seor by regressng ˆn on ĉ and ˆn on î, respevely, as shown n Table Noe here s only slgh dfferene beween he OLS and IV esmaes and so we use he former. These esmaes mply ha τ = and τ = Mananng our assumpon ha µ = µ = 1.3, we fnd ha A = and B = Deomposon. The pre of nvesmen goods an be deomposed easly usng (18) and he values found for A and B. We fnd ha abou 28% of he varaon n he pre of nvesmen are due o he endogenous me-varaon n markups. Here, we use a me seres on he pre of nvesmen omng from Fsher (2006). 13 I s mporan o noe ha none of he resuls above requre mposng any resrons on he model s spefaon of household behavor. The smple expresson for he pre of nvesmen goods an de derved from he assumpons on ehnology alone. 8 Jamovh and Floeoo (2008) argue ha hanges n he number of esablshmens mgh be a beer measure of hanges n he number of ompeors n he eonomy. 9 The SBA has daa on esmaed reeps and employmen as well; our resuls are robus o usng eher of hese nsead of payrolls. 10 These shares are vrually denal regardless of he Use able year. 11 For example, ake he Transporaon & Warehousng major ndusry group. We see ha 92% of s oupu goes o onsumpon and 8% goes o nvesmen, aordng o he Use able. Ths major ndusry group aouns for 3.38% of aggregae payrolls and has 76,000 esablshmens n 1992:3. Therefore, aouns for = onsumpon seor esablshmens and = nvesmen seor esablshmens n ha quarer. 12 Devaons ome from he Hodrk-Preso (HP) fler (smoohng parameer se a 1600) on logged daa. The mpled values of τ are robus o usng growh raes nsead of he HP devaons. Conssen wh our proposed mehansm, he daa show ha fluuaons n he number of nvesmen seor frms are abou 58% more volale han he number of onsumpon seor frms. 13 We hank Jonas Fsher for makng hese daa avalable o us. 8

10 Table 1: Esmaon OLS IV ˆn ˆn ˆn ˆn ĉ (0.158) (0.178) î (0.035) (0.031) R Noe: OLS and IV esmaes; Whe sandard errors n parenheses. Daa for dependen varables are desrbed n he ex; daa for ĉ and î are log-devaons from HP fler (smoohng parameer 1600) for onsumpon seres PCECC96 and nvesmen seres FPIC96, from FRED daabase a Federal Reserve Bank of S. Lous. IV esmaon s 2SLS usng a lag of he RHS varable. Consans (no shown) are nsgnfan. Daa run over 1992:3 2007:2. 4 Calbraon and Smulaon In order o smulae he eonomy we need o lose he model by spefyng he household sde. I s well known ha he seoral omovemen of hours worked does no arse n he benhmark wo seor model wh separable preferenes as n Kng, Plosser, and Rebelo (1988). 14 We use he resuls n Jamovh and Rebelo (forhomng) who show ha hs falure an be remeded by assumng a uly funon wh a weak shor-run wealh effe on he labor supply suh as he one proposed n Greenwood, Herowz, and Huffman (1988). A eah pon n me he eonomy s nhabed by a onnuum of denal households. The mass of households s normalzed o one. I s assumed ha he represenave agen has preferenes over random sreams of onsumpon and lesure. The represenave agen hooses a sequene of onsumpon, hours and nvesmens n apal o solve ( max E 0 β log C θ {H,C,K +1 } χ =0 14 See he dsusson n Chrsano and Fzgerald (1998). H 1+ 1 χ ) 9

11 Table 2: Calbraon Parameer µ 1 Markup n seady sae 30% τ Elasy whn ndusry (onsumpon seor) 0.87 τ Elasy whn ndusry (nvesmen seor) 0.92 α Capal share 0.30 H Tme spen workng 0.33 β Tme dsoun faor 0.99 δ Depreaon rae Noe: The albraon of µ, τ and τ s explaned n he man ex. The value of ω and ω do no maer for he resuls. The AR(1) parameer on produvy n he wo seors are esmaed o be ζ = 0.83 and ζ = 0.84 whle he shoks have sandard devaons σ(ε ) = , σ(ε ) = The orrelaon beween he shoks s ρ(ε, ε ) = The remanng parameers are sandard. subje o he sequenal budge onsran and he law of moon for apal C + P I = R K + W H + Π K +1 = (1 δ)k + I where he nal apal sok s gven and equal o K 0. C and H denoe onsumpon and hours worked by he household n perod. β (0, 1) and δ (0, 1) denoe he subjeve me dsoun faor and he depreaon rae of apal, χ 0 s he labor supply elasy and θ > 0. Households own he apal sok and ake he equlbrum renal rae, R, and he equlbrum wage, W, as gven. Fnally, households own he frms and reeve her profs, Π. We adop a sandard albraon of he parameers n he model see Table 2. In order o smulae he model we also need o spefy he parameers governng he sohas proess of z and z. We use he model s equlbrum ondons o denfy he ehnology shoks n he wo seors. Log-lnearzng equaons (11) and (12) and employng he exa same subsuons used o derve (17) leads o ) ẑ = (1 + A)ĉ α (ˆk ĥ ĥ (20) ) ẑ = (1 + B)î α (ˆk ĥ ĥ. (21) To onsru seor spef hours, H and H, we agan use he equlbrum ondons of he 10

12 Table 3: Daa and Model Momens I Daa II Benhmark III Consan Markups σ(x) σ(x)/σ(y) ρ(x, y) σ(x) σ(x)/σ(y) ρ(x, y) σ(x) σ(x)/σ(y) ρ(x, y) Oupu (y) Consumpon Invesmen Hours Hours (C Seor) Hours (I Seor) Pre of Invesmen Markups (C Seor) Markups (I Seor) Noe: Seond momens of daa, benhmark model, and model wh onsan markups. Benhmark model has endogenous markups. Seoral hours onsrued as desrbed n Seon 4. See ex for deals. model as he pre of nvesmen goods equals P = C H H I = C (H H ), I whh follows from (11) and (12). Hene, usng daa on P, C, I, and H we an onsru a seres of H and H ha ogeher wh (20) and (21) allow us o esmae ẑ and ẑ. For ẑ we esmae he AR1 oeffen ζ o equal 0.83 and a sandard devaon σ(ε ) of Smlarly, for ẑ we esmae ζ = 0.84 and σ(ε ) = Fnally, we fnd a orrelaon ρ(ε, ε ) of H Resuls of Smulaon. Panel I n Table 3 repors momens for he US. 16 Our benhmark model (Panel II) produes a pre of nvesmen seres ha s ounerylal wh a smlar magnude o he one observed n he daa. The model underperforms wh respe o he volaly of he seres: he rao of sandard devaons of he pre of nvesmen o oupu s 1.07 n he daa whle hs rao equals 0.75 n he model. Wh respe o oher varables of neres, he performane of he 15 The esmaon s done as follows. We rea ẑ and ẑ as frs dfferenes from whh we an buld a level seres of he wo shoks. One approah would hen be o follow Kng and Rebelo (1999). They assume ha log z and log z exhb a lnear rend whh hey use o onsru devaons. Usng hese approah we hen esmae ζ = 0.96 and σ(ε ) = 0.008, ζ = 0.99, and σ(ε ) = and ρ(ε, ε ) = When albraed wh hese parameers, he model generaes a ounerylal pre of nvesmen oo. However, he resulng seres of log z and log z exhb a non lnear rend. Hene, our preferred albraon s based on an esmae ha uses a more flexble spefaon of he rend,.e. an HP rend. 16 We use daa from 1955:1-2000:4, nludng he Fsher (2006) pre of nvesmen seres. 11

13 model s raher sandard. Invesmen s more volale han oupu, onsumpon s less volale han oupu, and he model underesmaes he volaly of hours worked. Ineresngly, he benhmark model (Panel II) generaes a orrelaon beween he hours n he wo seors and oupu ha resembles he esmaes we oban n he daa. In order o assess he role of he endogenous markups n generang hs negave orrelaon, Panel III repors he resuls of he same model wh he same ehnology shoks where he markup s a onsan. Hene, he only dfferene beween Panels II and III s along he mehansm emphaszed n hs noe,.e. he endogeney of he markup. Noe from Panel III ha he model generaes a pre of nvesmen me seres ha s boh () less volale han n he benhmark model and, more mporanly, () posvely orrelaed wh oupu. Hene, endogenous movemens n he markup are neessary for he model o generae a ounerylal proess of he pre of nvesmen goods. 5 Conluson Ths noe formulaes a smple sruural wo seor model n a general equlbrum framework n whh ehnology shoks ndue he enry and ex of ompeors. Endogenous varaon n he number of operang frms n he wo seors leads o endogenous varaon n he degree of ompeon over he busness yle. Ths model eonomy mples ha he pre of nvesmen goods an be deomposed no an exogenous omponen as well as an endogenous omponen ha resuls from he enry and ex of frms. Based on hs deomposon, he noe suggess ha abou a quarer of he varaon n he pre of nvesmen n he US s due o hs neraon. Moreover, he model, when smulaed, aouns for he ounerylaly of he pre of nvesmen goods. We show ha, whn our model, endogenous fluuaons n he markups are neessary o mah hs feaure of he daa. The model n hs noe represens a mnmal perurbaon of he prooype perfe ompeon wo seor real busness yle model. Ths grealy smplfes omparson wh exsng work and allows for a smple sruural deomposon of he pre of nvesmen goods. However, hs smply s purhased a he os of desrpve realsm suh as he assumpon of a symmer model wh no heerogeney n he sze of ompeors. Moreover, we do no onsder varous oher elemens 12

14 (suh as seor spef apay ulzaon and labor hoardng) ha ould generae endogenous movemens n he pre of nvesmen goods. We leave hese exensons for fuure researh. 13

15 Referenes Basu, S., and J. G. Fernald (2002): Aggregae produvy and aggregae ehnology, European Eonom Revew, 46(6), Baxer, M. (1996): Are Consumer Durables Imporan for Busness Cyles?, The Revew of Eonoms and Sass, 78(1), Chrsano, L. J., and T. J. Fzgerald (1998): The Busness Cyle: I s Sll a Puzzle, Eonom Perspeves, 22. Cummns, J. G., and G. L. Volane (2002): Invesmen-Spef Tehnal Change n he US ( ): Measuremen and Maroeonom Consequenes, Revew of Eonom Dynams, 5(2), Evans, C. L. (1992): Produvy shoks and real busness yles, Journal of Moneary Eonoms, 29(2), Fsher, J. D. M. (2006): The Dynam Effes of Neural and Invesmen-Spef Tehnology Shoks, Journal of Polal Eonomy, 114(3), Greenwood, J., Z. Herowz, and G. W. Huffman (1988): Invesmen, Capay Ulzaon, and he Real Busness Cyle, Ameran Eonom Revew, 78(3), Greenwood, J., Z. Herowz, and P. Krusell (2000): The role of nvesmen-spef ehnologal hange n he busness yle, European Eonom Revew, 44(1), Greenwood, J., and P. Krusell (2007): Growh aounng wh nvesmen-spef ehnologal progress: A dsusson of wo approahes, Journal of Moneary Eonoms, 54(4), Hall, R. E. (1986): Marke Sruure and Maroeonom Fluuaons, Brookngs Papers on Eonom Avy, 2, (1988): The Relaon beween Pre and Margnal Cos n U.S. Indusry, Journal of Polal Eonomy, 96(5), (1990): The Invarane Properees of Solow s Produvy Resdual, n Growh, Produvy, and Unemploymen, ed. by P. Damond. MIT Press. Harrson, S. G. (2003): Reurns o Sale and Exernales n he Consumpon and Invesmen Seors, Revew of Eonom Dynams, 6(4), Hornsen, A., and J. Prashnk (1997): Inermedae npus and seoral omovemen n he busness yle, Journal of Moneary Eonoms, 40(3), Huffman, G. W., and M. A. Wynne (1999): The role of nraemporal adjusmen oss n a mulseor eonomy, Journal of Moneary Eonoms, 43(2), Jamovh, N., and M. Floeoo (2008): Frm Dynams, Markup Varaons, and he Busness Cyle, Journal of Moneary Eonoms, 55(7),

16 Jamovh, N., and S. Rebelo (forhomng): Can News Abou he Fuure Drve he Busness Cyle?, Ameran Eonom Revew. Jusnano, A., and G. E. Prmer (2006): The Tme Varyng Volaly of Maroeonom Fluuaons, Nber workng papers, Naonal Bureau of Eonom Researh, In. Km, K. H. (2006): Is Invesmen-Spef Tehnologal Change Really Imporan for Busness Cyles?, Dsusson paper, UCSD. Kng, R. G., C. I. Plosser, and S. T. Rebelo (1988): Produon, growh and busness yles : I. The bas neolassal model, Journal of Moneary Eonoms, 21(2-3), Kng, R. G., and S. T. Rebelo (1999): Resusang real busness yles, n Handbook of Maroeonoms, ed. by J. B. Taylor, and M. Woodford, vol. 1 of Handbook of Maroeonoms, hap. 14, pp Elsever. Long, Jr., J. B., and C. I. Plosser (1983): Real Busness Cyles, The Journal of Polal Eonomy, 91(1), Ramey, V. A. (1996): Can Tehnology Improvemens Cause Produvy Slowdowns? Commen, n NBER Maroeonoms Annual, vol. 11, pp The Unversy of Chago Press. Roemberg, J. J., and M. Woodford (1996): Imperfe Compeon and he Effes of Energy Pre Inreases on Eonom Avy, Journal of Money, Cred and Bankng, 28(4),

17 A Appendx Usng he BLS daa, we arrve a he oal number of esablshmens n a superseor by addng Expansons (busnesses ha were already n exsene and added employees) o Conraons (busnesses ha were already n exsene and shed employees) o Openngs (busnesses ha ame no exsene) and hen subra Closngs (busnesses ha losed). In order o wegh he number of esablshmens aordng o her eonom mporane we use daa on annual payrolls for eah major ndusry group from he Small Busness Admnsraon (SBA), for In s raw form, he SBA has daa for weny large non-agrulural ndusry groups. These weny groups are a subparon of he paron of hreen above. We hene add hese weny seors up o ge values of he annual payroll for he hreen BLS superseors. The average rao of one major ndusry group s payroll o he sum of all groups payrolls s hen he group wegh, and we use hese o alulae normalzed esablshmen ouns for he major ndusry groups. These weghs do no vary appreably beween 1988 and From he BEA Inpu-Oupu Use able, we are able o alulae he amoun of oupu used for Personal Consumpon Expendure or for Fxed Prvae Invesmen for eghy-four non-agrulural ndusres smlar o 2-dg SIC ndusres. Addng up he ndusres whn eah major ndusry group, we arrve a a value of Personal Consumpon Expendure and Fxed Prvae Invesmen for he group. We hen defne he group s onsumpon seor share as (Personal Consumpon Expendure)/(Personal Consumpon Expendure plus Fxed Prvae Invesmen), whle he nvesmen seor share s Fxed Prvae Invesmen over he same denomnaor. A.1