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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. 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.
  2. Unknown, 1998. "Discussion," Journal of Economic Psychology, Elsevier, vol. 19(5), pages 645-650, October.
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  4. Unknown, 1998. "Discussion," Journal of Economic Psychology, Elsevier, vol. 19(5), pages 619-643, October.
  5. Collard, Fabrice & Dellas, Harris, 2002. "Exchange rate systems and macroeconomic stability," Journal of Monetary Economics, Elsevier, vol. 49(3), pages 571-599, April.
  6. Susanto Basu & John Fernald & Miles Kimball, 2004. "Are technology improvements contractionary?," Working Paper Series WP-04-20, Federal Reserve Bank of Chicago.
  7. Michael Dotsey, 1999. "Structure from shocks," Working Paper 99-06, Federal Reserve Bank of Richmond.
  8. King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007 Elsevier.
  9. V. V Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 533-563.
  10. Jordi Gali, 2002. "New Perspectives on Monetary Policy, Inflation, and the Business Cycle," NBER Working Papers 8767, National Bureau of Economic Research, Inc.
  11. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262231204, 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. 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.
  14. Unknown, 1998. "Discussion," Journal of Economic Psychology, Elsevier, vol. 19(5), pages 651-652, October.
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Cited by:
  1. Bodenstein, Martin, 2011. "Closing large open economy models," Journal of International Economics, Elsevier, vol. 84(2), pages 160-177, July.
  2. Federico S. Mandelman & Francesco Zanetti, 2008. "Technology shocks, employment, and labor market frictions," Working Paper 2008-10, Federal Reserve Bank of Atlanta.
  3. Martin Bodenstein, 2008. "Trade elasticity of substitution and equilibrium dynamics," International Finance Discussion Papers 934, Board of Governors of the Federal Reserve System (U.S.).
  4. Dupaigne, Martial & Fève, Patrick, 2009. "Hours Worked and Permanent Technology Shocks in Open Economies," TSE Working Papers 09-114, Toulouse School of Economics (TSE).
  5. Dupaigne, Martial & Fève, Patrick, 2005. "Technology Shocks around the World," IDEI Working Papers 346, Institut d'Économie Industrielle (IDEI), Toulouse.
  6. Mandelman, Federico S. & Zanetti, Francesco, 2013. "Flexible prices, labor market frictions, and the response of employment to technology shocks," Working Paper 2013-16, Federal Reserve Bank of Atlanta.
  7. 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.
  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. Artuc, Erhan & Pourpourides, Panayiotis M., 2012. "R&D and aggregate fluctuations," Policy Research Working Paper Series 6017, The World Bank.
  10. Domenico J. Marchetti & Francesco Nucci, 2007. "Pricing Behavior and the Response of Hours to Productivity Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1587-1611, October.
  11. Hashmat Khan & John Tsoukalas, 2005. "Technology Shocks and UK Business Cycles," Macroeconomics 0512006, EconWPA.
  12. 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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