Working Paper: NBER ID: w8726
Authors: Neville Francis; Valerie A. Ramey
Abstract: In this paper, we re-examine the recent evidence that technology shocks do not produce business cycle patterns in the data. We first extend Gal¡'s (1999) work, which uses long-run restrictions to identify technology shocks, by examining whether the identified shocks can be plausibly interpreted as technology shocks. We do this in three ways. First, we derive additional long-run restrictions and use them as tests of overidentification. Second, we compare the qualitative implications from the model with the impulse responses of variables such as wages and consumption. Third, we test whether some standard 'exogenous' variables predict the shock variables. We find that oil shocks, military build-ups, and Romer dates do not predict the shock labeled 'technology.' We then show ways in which a standard DGE model can be modified to fit Gal¡'s finding that a positive technology shock leads to lower labor input. Finally, we re-examine the properties of the other key shock to the system.
Keywords: technology shocks; business cycles; aggregate fluctuations
JEL Codes: E3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| technology shocks (D89) | decline in labor input (J22) |
| technology shocks (D89) | productivity (O49) |
| technology shocks (D89) | consumption (E21) |