Current business cycle models systematically underestimate the correlation between consumption and investment. One reason for this failure is that a positive investment-specific technology shock generally induces a negative consumption response. The objective of this paper is to investigate...

In this paper we study the transmission for capital depreciation shocks. The existing literature in the Real Business Cycle tradition has concluded that these shocks are irrelevant for business cycle fluctuations. We show that these shocks are potentially important drivers of aggregate...

Recent studies fi nd that shocks to the marginal efficiency of investment are a main driver of business cycles. Yet, they struggle to explain why consumption co-moves with real variables such as investment and output, which is a typical feature of an empirically recognizable business cycle. In...