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Total factor productivity and the propagation of shocks: Empirical evidence and implications for the business cycle

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  • Mayer, Eric
  • Rüth, Sebastian
  • Scharler, Johann

Abstract

Using a robust sign restrictions approach, we study the response of total factor productivity (TFP) to structural shocks in a VAR framework. We find that TFP increases in response to adverse supply, demand, and wage mark-up shocks. Results for monetary policy shocks are insignificant. Following an adverse technology shock and reductions in government spending, TFP declines. Overall, we conclude that TFP fluctuates endogenously over the business cycle, a feature of the data that is not present in standard DSGE models.

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  • Mayer, Eric & Rüth, Sebastian & Scharler, Johann, 2016. "Total factor productivity and the propagation of shocks: Empirical evidence and implications for the business cycle," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 335-346.
    • Handle: RePEc:eee:jmacro:v:50:y:2016:i:c:p:335-346
    DOI: 10.1016/j.jmacro.2016.11.001
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    Cited by:

    1. Teresiński, Jan, 2019. "Total factor productivity and the terms of trade," IWH-CompNet Discussion Papers 6/2019, Halle Institute for Economic Research (IWH).

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    More about this item

    Keywords

    TFP; Robust sign restrictions; Business cycle;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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