Working Paper: NBER ID: w14950
Authors: Paul Beaudry; Bernd Lucke
Abstract: There are several candidate explanations for macro-fluctuations. Two of the most common discussed sources are surprise changes in disembodied technology and monetary innovations. Another popular explanation is found under the heading of a preference or more generally a demand shock. More recently two other explanations have been advocated: surprise changes in investment specific technology and news about future technology growth. The aim of this paper is to provide a quantitative assessment of the relative merits of all these explanations by adopting a framework which allows them to compete. In particular, we propose a co-integrated SVAR approach that encompasses all 5 shocks and thereby offers a coherent evaluation of the dynamics they induce as well as their contribution to macro volatility. Our main finding is that surprise changes in technology, whether it be of the disembodied or embodied nature, account for very little of fluctuations. In contrast, expected changes in technology appear to be an important force, with preference/demand shocks and monetary shocks also playing non-negligible roles.
Keywords: Business Cycles; Technology Shocks; Monetary Policy; Demand Shocks
JEL Codes: E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| news shocks (G14) | macroeconomic fluctuations (E39) |
| news shocks (G14) | total factor productivity (TFP) (D24) |
| monetary shocks (E39) | hours worked (J22) |
| monetary shocks (E39) | investment (G31) |
| preference shocks (D11) | macroeconomic fluctuations (E39) |
| disembodied technology shocks (O33) | economic activity (E20) |
| embodied technology shocks (O33) | economic activity (E20) |
| investment-specific technology shocks (O39) | macroeconomic fluctuations (E39) |