Relative prices, complementarities and comovement among components of aggregate expenditures

Recent work suggests that the standard real business cycle framework has difficulty accounting for co-movement among aggregate expenditure components when they are disaggregated even slightly to include business and household investment. In addition, relative prices of these goods have displayed substantial variation over the post-war period. This paper reports that incorporating a source of empirically plausible relative price variability makes the framework's implications for comovement even worse, compounding the comovement problem. The possibility that complementarities in the production of household and business capital may help account for observed co-movement is considered. The results suggest that complementarities improved the framework's empirical performance.