Investment shocks and the relative price of investment

Abstract. We estimate a New-Neoclassical Synthesis business cycle model with two invest-ment shocks. The \u85rst, an investment-speci\u85c technology shock, a¤ects the transformation of consumption into investment goods and is identi\u85ed with the relative price of invest-ment. The second a¤ects the production of installed capital from investment goods or, more broadly, the transformation of savings into the future capital input. We \u85nd that this shock is the most important driver of U.S. business cycle uctuations in the post-war period and that it is likely to proxy for more fundamental disturbances to the smooth functioning of the nancial sector. To corroborate this interpretation, we show that it correlates strongly with interest rate spreads and that it played a particularly important role in the recession of 2008