Do TFP and the relative price of investment share a common I(1) component?

Are neutral and investment-specific technology shocks correlated?

“…As discussed in Benati (2014), these empirical results have far-reaching consequences for business-cycle theory. If the stochastic processes for neutral and investment-specific technology are indeed correlated, earlier work imposing independence is misspecified and may provide biased estimates of the role of technology shocks in aggregate fluctuations.…”

“…Recently, several papers questioned the notion that neutral and investment-specific technology follow independent processes. Using different empirical methods, Schmitt-Grohé and Uribe (2011), Benati (2014), Chen and Wemy (2015), and Guerrieri, Henderson, and Kim (2020) all argue that neutral and investment-specific technology comove positively in the long run. To make the point, Schmitt-Grohé and Uribe and Benati study the long-run relationship between total factor productivity (TFP) and the relative price of investment (RPI) using both standard cointegration tests and more advanced statistical methods, while Chen and Wemy and Guerrieri, Henderson, and Kim exploit structural vector autoregressions (SVARs).…”

“…In Section 2, I start by clarifying a measurement issue that complicates the interpretation of the relationship between TFP and the RPI. The premise of both Schmitt-Grohé and Uribe (2011) and Benati (2014) is the notion that TFP reflects neutral technology and that the RPI corresponds to the inverse of investment-specific technology. I stress that this mapping is violated by the way TFP is measured in the data: standard TFP series are constructed as Solow residuals from chain-aggregated output and do not correspond to neutral technology in multi-sector models.…”

The impact of economic policy uncertainty on the innovation in China: Empirical evidence from autoregressive distributed lag bounds tests

“…This uncertainty index includes some important economic aspects that are the frequency of newspaper related to uncertainty of economic policy, the numeral federal tax code provisions set to expire, and the degree of economic forecaster disagreement over future inflation rate and government purchases. Different studies related to Bloom (2009)., Alexopoulos & Cohen (2009) also explained by Fernandez-Villaverde et al 2013, Baker et al (2013), see Mumtaz and Surico (2013), similarly by Caggiano et al (2014), Benati (2014) and Nodari (2014) along with various others explained that economic policies can put negative effect on employment, investment, industrial production and consumption. The index of EPU established by Baker et al (2015) also has small effects especially on various economic activity when comparatively compared with various macroeconomic measures of uncertainty by Jurado et al (2015).…”

Asymmetric effects of shocks on TFP

“…Schmitt-Grohe and Uribe (2011) identify that neutral and investment-specific productivity have a common stochastic trend (a novel source of aggregate fluctuations) and, moreover, total factor productivity (TFP) and the relative price of investment are cointegrated. On the other hand, Benati (2014)'s result from cointegration tests suggest that TFP and the relative price of investment are not cointegrated, irrespective of whether structural breaks in the series are allowed for. A key element of these studies is whether the US TFP process contains a unit root, thereby allowing for cointegration or not.…”