The baseline calibration suppresses the stochastic nature of the investment-specific
shocks; their importance in the baseline calibration is, in combination with balanced
growth facts, to deliver key parameter restrictions—in particular, the Cobb–Douglas
restriction on the home and market production functions. Starting with Greenwood et al.
(1997), there is a growing literature exploring the role that investment-specific shocks play
in accounting for business cycle fluctuations. This section discusses measurement of these
shocks, and estimates their stochastic properties