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Technology Shocks and Employment

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  • Fabrice Collard
  • Harris Dellas

Abstract

Recent empirical work has suggested that in response to a positive technology shock employment shows a "persistent decline". We show that the standard, open economy, flexible price model can generate a negative response of employment to a positive technology shock and can also match the negative conditional correlation between productivity and employment quite well if trade elasticities are low. While the model also has good overall properties, it fails to generate sufficient procyclicality in employment. This finding indicates that the RBC model faces a tension between accounting for the negative response of employment to technology shocks and "simultaneously" maintaining that technology shocks are the major source of business cycle fluctuations. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 117 (2007)
Issue (Month): 523 (October)
Pages: 1436-1459

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Handle: RePEc:ecj:econjl:v:117:y:2007:i:523:p:1436-1459

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References

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  1. Collard, Fabrice & Dellas, Harris, 2002. "Exchange rate systems and macroeconomic stability," Journal of Monetary Economics, Elsevier, vol. 49(3), pages 571-599, April.
  2. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," Working Papers 93-21, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Michael Dotsey, 1999. "Structure from shocks," Working Paper 99-06, Federal Reserve Bank of Richmond.
  4. Miles S. Kimball & John G. Fernald & Susanto Basu, 2006. "Are Technology Improvements Contractionary?," American Economic Review, American Economic Association, vol. 96(5), pages 1418-1448, December.
  5. Lawrence J. Christiano & Richard M. Todd, 1996. "Time to plan and aggregate fluctuations," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-27.
  6. V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," NBER Working Papers 7869, National Bureau of Economic Research, Inc.
  7. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," RCER Working Papers 467, University of Rochester - Center for Economic Research (RCER).
  8. Unknown, 1998. "Discussion," Journal of Economic Psychology, Elsevier, vol. 19(5), pages 645-650, October.
  9. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262231204.
  10. Galí, Jordi, 2002. "New Perspectives on Monetary Policy, Inflation and the Business Cycle," CEPR Discussion Papers 3210, C.E.P.R. Discussion Papers.
  11. José Angulo & N. Cressie & C. Wikle & P. Soidán & M. Bande & C. Glasbey & John Kent & Ana Militino & Michael Stein, 1998. "Discussion," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer, vol. 7(2), pages 283-285, December.
  12. Neville Francis & Valerie A. Ramey, 2002. "Is the Technology-Driven Real Business Cycle Hypothesis Dead?," NBER Working Papers 8726, National Bureau of Economic Research, Inc.
  13. Unknown, 1998. "Discussion," Journal of Economic Psychology, Elsevier, vol. 19(5), pages 651-652, October.
  14. Unknown, 1998. "Discussion," Journal of Economic Psychology, Elsevier, vol. 19(5), pages 619-643, October.
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Citations

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Cited by:
  1. Federico S. Mandelman & Francesco Zanetti, 2008. "Estimating general equilibrium models: an application with labour market frictions," Technical Books, Centre for Central Banking Studies, Bank of England, edition 1, number 1.
  2. Martin Bodenstein, 2009. "Trade Elasticity of Substitution and Equilibrium Dynamics," 2009 Meeting Papers 766, Society for Economic Dynamics.
  3. Federico S. Mandelman & Francesco Zanetti, 2008. "Technology shocks, employment, and labor market frictions," Working Paper 2008-10, Federal Reserve Bank of Atlanta.
  4. Martial Dupaigne & Patrick Fève, 2010. "Hours Worked and Permanent Technology Shocks in Open Economies," Open Economies Review, Springer, vol. 21(1), pages 69-86, February.
  5. Erhan Artuc & Panayiotis M. Pourpourides, 2012. "R&D and Aggregate Fluctuations," Working Papers 2012-01, Central Bank of Cyprus.
  6. Martial Dupaigne & Patrick Feve, 2009. "Technology shocks around the world," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 592-607, October.
  7. Marchetti, Domenico J. & Nucci, Francesco, 2006. "Pricing Behaviour and the Response of Hours to Productivity Shocks," CEPR Discussion Papers 5504, C.E.P.R. Discussion Papers.
  8. Jordi Gali & Pau Rabanal, 2004. "Technology Shocks and Aggregate Fluctuations: How Well Does the RBS Model Fit Postwar U.S. Data?," NBER Working Papers 10636, National Bureau of Economic Research, Inc.
  9. Hashmat Khan & John Tsoukalas, 2005. "Technology Shocks and UK Business Cycles," Macroeconomics 0512006, EconWPA.
  10. Bodenstein, Martin, 2011. "Closing large open economy models," Journal of International Economics, Elsevier, vol. 84(2), pages 160-177, July.
  11. Martin Bodenstein, 2006. "Closing open economy models," International Finance Discussion Papers 867, Board of Governors of the Federal Reserve System (U.S.).

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