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East Asian Economic Review Vol. 13, No. 1, 2009. pp. 41-55.

DOI https://dx.doi.org/10.11644/KIEP.JEAI.2009.13.1.195

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Decomposing the Cyclical Movements in the Real Price of Equipment

Author

Kwang Hwan Kim

Dongguk University

k2kim@dongguk.edu
Creative Commons Attribution License

EAER is an open access journal distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license.

Abstract

This paper raises warning flags about the current use of the real price of equipment as the driving process for investment-specific technology in the Real-Business-Cycle (RBC) model. Using a structural VAR approach, this paper finds that a significant fraction of the real price of equipment is accounted for by other shocks besides investment-specific technology shocks (I-shocks). This finding indicates that the current RBC models which use the real price of equipment as the driving process of investment-specific technology might overstate the contribution of I-shocks to economic fluctuations.

JEL classification: E32, E22

Keywords

Investment-Specific Technology Shock, Real Price of Equipment, Structural VAR

Language

Korean

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