Decomposing the Cyclical Movements in the Real Price of Equipment

This paper raises warning flags about the current use of the real price of equipment as the driving process for investment-specific technology in the Real-Business-Cycle (RBC) model.Using a structural VAR approach, this paper finds that a significant fraction of custom congratulations banner the real price of equipment is accounted for by other shocks besides investment-specific technology here shocks (I-shocks).This finding indicates that the current RBC models which use the real price of equipment as the driving process of investment-specific technology might overstate the contribution of I-shocks to economic fluctuations.