The Impact of Investment-Specific Technology Shocks on Macroeconomics Variables

This paper investigates the short-run impact of Investment-Specific Technology (IST) Shocks on macroeconomics variables namely; Aggregate Investment, Aggregate Consumption and Gross Domestic Product using the VAR(p) model and quarterly data of the US economy from 1960 through 2018. After estimation, one striking result is that from the Granger causality test. The test showed that though IST depends on aggregate consumption, aggregate consumption is not significant in explaining IST, yet, a shock to IST influence a change in aggregate consumption. Inferences from impulse response function (IRF) showed that a positive shock to IST induces a positive response or a positive co-movement among all three macro variables reconciling with a conventional real-business-cycle interpretation of business cycles. Without any form of nominal rigidities and non-separable Preferences, the VAR(p) model predicted a positive response of IST shocks on all three macroeconomic variables.