Comovement: it's not a puzzle

A defining feature of business cycles is the comovement of inputs at the sectorial level with aggregate activity. Standard models cannot account for this phenomenon. This paper develops and estimates a two-sector dynamic general equilibrium model which can account for this key regularity. My model incorporates three shocks to the economy: monetary policy shocks, neutral technology shocks in the consumption and investment sector, and embodied technology shocks in the capital producing sector. The estimated model is able to account for the response of the US economy to all three shocks. Using this model, I argue that the key friction underlying sectorial comovement is rigidity in nominal wages