Working Paper: NBER ID: w23142
Authors: Andr Kurmann; Eric Sims
Abstract: This paper documents large revisions in a widely-used series of utilization-adjusted total factor productivity (TFP) by Fernald (2014) and shows that these revisions can materially affect empirical conclusions about the macroeconomic effects of news shocks. We propose an alternative identification that is robust to measurement issues with TFP, including the revisions in Fernald’s series. When applied to U.S. data, the shock predicts sustained future productivity growth while simultaneously generating strong impact responses of novel indicators of technological innovation and forward-looking information variables. The shock does, however, not lead to comovement in macroeconomic aggregates as typically associated with business cycle fluctuations.
Keywords: utilization-adjusted TFP; news shocks; macroeconomic fluctuations
JEL Codes: E22; E23; E32; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| positive news shock (G14) | jump in consumption (E21) |
| positive news shock (G14) | initial decline in hours worked (J22) |
| initial decline in hours worked (J22) | negative correlation between consumption growth and hours growth (E20) |
| positive news shock (G14) | increases in consumption, hours, and other real aggregates (E20) |
| max-share identification (C71) | sustained future TFP growth (O49) |
| max-share identification (C71) | accounts for a large share of macroeconomic fluctuations at medium to longer horizons (E32) |
| max-share identification (C71) | generates significant positive responses in asset prices (G19) |
| max-share identification (C71) | generates significant positive responses in consumer confidence (D12) |
| max-share identification (C71) | generates significant positive responses in measures of technological innovation (O31) |
| positive news shock (G14) | does not lead to comovement in macroeconomic aggregates (E19) |