Investment shocks and business cycles

Alejandro Justiniano, Giorgio E. Primiceri*, Andrea Tambalotti

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

358 Scopus citations


The origins of business cycles are still controversial among macroeconomists. This paper contributes to this debate by studying the driving forces of fluctuations in an estimated new neoclassical synthesis model of the U.S. economy. In this model, most of the variability of output and hours at business cycle frequencies is due to shocks to the marginal efficiency of investment. Imperfect competition and, to a lesser extent, technological frictions are the key to their transmission. Although labor supply shocks explain a large fraction of the fluctuations in hours at very low frequencies, they are irrelevant over the business cycle. This finding is important because the microfoundations of these disturbances are widely regarded as unappealing.

Original languageEnglish (US)
Pages (from-to)132-145
Number of pages14
JournalJournal of Monetary Economics
Issue number2
StatePublished - Mar 2010


  • Bayesian methods
  • DSGE model
  • Durable consumption goods
  • Endogenous markups
  • Imperfect competition

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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