Szilard Benk, Tamas Csabafi, Jing Dang, Max Gillman, and Michal Kejak
INTERNATIONAL MONETARY FUND
For US postwar data, the paper explains central consumption, labor, investment and
output correlations and volatilities along with output growth persistence by including
a human capital investment sector and a variable physical capital utilization rate.
Strong internal "amplication" results from an economy-wide productivity shock across
goods and human capital investment sectors that has variances 10,000 fold smaller
than in the standard RBC TFP shock. Simulated moments are compared to data
moments for the business cycle, the low frequency and the Medium Cycle frequency,
as well as the high frequency. A metric is provided to gauge that the results have
an average of 46% deviation of simulated moments from data moments, for a broad
array of targets across all windows. Within this array, key correlations have only a 15%
deviation in the business cycle window, and growth persistence only an 8% deviation in
the low frequency, which indicates good "propagation". Countercyclic human capital
investment time and procyclic physical capital capacity utilization rates are also found
as in data.