Reexamining the cyclical behavior of the relative price of investment

Author / Creator

Beaudry, Paul, 1960- author

Available as

Online

Summary

The cyclical behavior of the relative price of investment goods plays an important role in many modern macroeconomic models. In this paper we examine the behavior of several measures of the relativ...

The cyclical behavior of the relative price of investment goods plays an important role in many modern macroeconomic models. In this paper we examine the behavior of several measures of the relative price of investment goods for the U.S. economy over the last fifty years. In particular, we examine whether there are robust cyclical patterns, whether results differ by sub-sample and whether the nature of the deflator matters. Our main result is that there is no robust evidence that this relative price is countercyclical in the data. In fact, for the recent (post-Volcker) period, the relative price of investment appears predominantly procyclical. When looking at more disaggregated series, most measures are procyclical, a few acyclical, and only the price of equipment is significantly countercyclical for some periods and measures. The procyclical behavior of the relative price of aggregate investment is also shown to characterize six other countries of the G7.

Show More