2019
DOI: 10.1515/bejm-2018-0177
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What does a relative price of investment wedge reveal about the role of investment-specific technology?

Abstract: In order to identify investment-specific technology (IST), most DSGE models assume a perfect inverse relationship between IST and the relative price of investment (RPI). This paper explores this relationship and provides evidence that the RPI also responds to changes in market power, which I find constitutes a third of volatility in the RPI. To corroborate this conclusion, two competing models are produced; the first is a two-sector model with a wedge separating the identification of IST with the inverse of th… Show more

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