Working Paper: NBER ID: w2147
Authors: Matthew D. Shapiro
Abstract: Measured productivity is strongly procyclical. Real business cycle theories suggest that actual fluctuations in productivity are the source of fluctuations in aggregate output. Keynesian theories maintain that fluctuations in aggregate output come from shocks to aggregate demand. Keynesian theories appeal to labor hoarding or off the production function behavior to explain the procyclicality of productivity. If observed productivity shocks are true productivity shocks, a function of factor prices should covary exactly with productivity. In annual data for U.S. industries, that function of factor prices and conventionally-measured productivity move together very closely. Moreover, their difference is uncorrelated with aggregate output.
Keywords: productivity; business cycles; supply shocks; demand shocks
JEL Codes: E32; E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| productivity fluctuations (O49) | aggregate output (E10) |
| true productivity shocks (O49) | factor prices (F16) |
| productivity shocks (O49) | aggregate output (E10) |
| real wage growth (J39) | Solow residual (O41) |
| productivity fluctuations (O49) | price measures of productivity (E23) |
| productivity shocks (O49) | demand shocks (E39) |