Working Paper: CEPR ID: DP4827
Authors: Jesper Lind
Abstract: Recent work on the effects of permanent technology shocks argue that the basic RBC model cannot account for a negative correlation between hours worked and labour productivity. In this Paper, I show that this conjecture is not necessarily correct. In the basic RBC model, I find that hours worked fall and labour productivity rises after a positive permanent technology shock once one allows for the possibility that the process for the permanent technology shock is persistent in growth rates. A more serious limitation of the RBC model is its inability to generate a persistent rise in hours worked after a positive permanent technology shock along with a rise in labour productivity that are in line with what the data suggests.
Keywords: hours worked per capita; labour productivity; permanent technology shocks; real business cycle model; vector autoregressions
JEL Codes: E24; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| positive permanent technology shock (O49) | decrease in hours worked (J22) |
| positive permanent technology shock (O49) | increase in labor productivity (O49) |
| persistence of technology shock (O33) | affects model's predictions (C20) |
| positive permanent technology shock (O49) | negative correlation between hours worked and labor productivity (J22) |