Consumption and investment comove over the business cycle in response to shocks that permanently move the price of investment. The interpretation of these shocks has relied on standard one-sector models or on models with two or more sectors that can be aggregated. We show that the same interpretation can also be motivated with a model that captures key features of the US Input–Output Tables and cannot be aggregated into a standard one-sector model. Our alternative model yields a closer match to the empirical evidence of positive comovement for consumption and investment subject shocks that permanently move the price of investment.
ASJC Scopus subject areas
- Social Sciences (miscellaneous)
- Economics and Econometrics