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Are Technology Shocks Nonlinear?

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Author Info

  • Altug, Sumru
  • Ashley, Richard A.
  • Patterson, Douglas M.

Abstract

The behavior of postwar real U.S. GNP, the inputs to anaggregate production function, and several formulations of the associated Solowresiduals for the presence of nonlinearities in their generating mechanisms are examined. Three different statistical tests for nonlinearity are implemented: the McLeod-Li test, the BDS test, and the Hinich bicovariance test.We find substantial evidence for nonlinearity in the generating mechanism of real GNP growth but no evidence for nonlinearity in the Solow residuals.We further find that the generating mechanism of the labor input series is nonlinear, whereas that of the capital services input appears to be linear.We therefore conclude that the observed nonlinearity in real output arisesfrom nonlinearities in the labor markets, not from nonlinearities in the technical shocks driving the system. Finally, we investigate the source of the nonlinearities in the labor markets by examining simulated data from a model of the Dutch economy with asymmetric adjustment costs.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 3 (1999)
Issue (Month): 04 (December)
Pages: 506-533

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Handle: RePEc:cup:macdyn:v:3:y:1999:i:04:p:506-533_01

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Cited by:
  1. Sumru Altug & Erhan Uluceviz, 2011. "Leading Indicators of Real Activity and Inflation for Turkey, 2001-2010," Koç University-TUSIAD Economic Research Forum Working Papers 1134, Koc University-TUSIAD Economic Research Forum.
  2. Sean Holly & Paul Turner & Melvyn Weeks, 2003. "Asymmetric Adjustment and Bias in Estimation of an Equilibrium Relationship from a Cointegrating Regression," Computational Economics, Society for Computational Economics, vol. 21(3), pages 195-202, June.
  3. Diego Valderrama, 2002. "Nonlinearities in international business cycles," Working Paper Series 2002-23, Federal Reserve Bank of San Francisco.
  4. Altug, Sumru G. & Bildirici, Melike, 2010. "Business Cycles around the Globe: A Regime-switching Approach," CEPR Discussion Papers 7968, C.E.P.R. Discussion Papers.
  5. Valderrama, Diego, 2007. "Statistical nonlinearities in the business cycle: A challenge for the canonical RBC model," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 2957-2983, September.
  6. Diego Valderrama, 2003. "Statistical Nonlinearities in the Business Cycle," Computing in Economics and Finance 2003 219, Society for Computational Economics.
  7. Gary D. Hansen & Edward C. Prescott, 2005. "Capacity constraints, asymmetries, and the business cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 850-865, October.
  8. Randal J. Verbrugge, 1998. "A cross-country investigation of macroeconomic asymmetries," Macroeconomics 9809017, EconWPA, revised 30 Sep 1998.

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