Paper examines how sticky investment prices affect DGSE model
Findings bring model in line with growth accounting exercises, researcher says
A working paper published by the Bank of Luxembourg examines how the predictions of standard dynamic general stochastic equilibrium (DGSE) models are modified by price rigidities in the investment sector.
In Investment price rigidity and business cycles, Alban Moura adds sticky investment prices to a two-sector monetary model of business cycles. He then applies this model to data from US quarterly figures.
The introduction of sticky investment prices means that estimated DGSE models make
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