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On the contribution of technology shocks to business cycles

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Author Info
S. Rao Aiyagari

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Abstract

This article contends that the various measures of the contribution of technology shocks to business cycles calculated using the real business cycle modeling method are not corroborated. The article focuses on a different and much simpler method for calculating the contribution of technology shocks, which takes account of facts concerning the productivity/labor input correlation and the variability of labor input relative to output. Under several standard assumptions, the method predicts that the contribution of technology shocks must be large (at least 78 percent), that the labor supply elasticity need not be large to explain the observed fluctuation in labor input, and that the contribution of technology shocks can be estimated fairly precisely. The method also estimates that the contribution of technology shocks could be lower than 78 percent under alternative assumptions. ; Reprinted in the Quarterly Review, Summer 1997 (v. 21, no. 3)

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Publisher Info
Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

Volume (Year): (1994)
Issue (Month): Win ()
Pages: 22-34
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Handle: RePEc:fip:fedmqr:y:1994:i:win:p:22-34:n:v.18no.1

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Related research
Keywords: Business cycles ; Technology;

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Cited by:
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  1. Alison Butler & Michael R. Pakko, 1998. "R&D spending and cyclical fluctuations: putting the "technology" in technology shocks," Working Papers 1998-020, Federal Reserve Bank of St. Louis. [Downloadable!]
  2. Finn E. Kydland & Edward C. Prescott, 1994. "The computational experiment: an econometric tool," Staff Report 178, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  3. Jang-Ting Guo & Kevin J. Lansing, 1994. "Tax structure, optimal fiscal policy, and the business cycle," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 2-14. [Downloadable!]
  4. Kevin J. Lansing, 1995. "Optimal fiscal policy when public capital is productive: a business cycle perspective," Working Paper 9507, Federal Reserve Bank of Cleveland. [Downloadable!]
  5. Harold L. Cole & Lee E. Ohanian & Ron Leung, 2005. "Deflation and the International Great Depression: A Productivity Puzzle," NBER Working Papers 11237, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Jang-Ting Guo & Kevin J. Lansing, 1994. "The welfare effects of tax simplification: a general-equilibrium analysis," Working Paper 9409, Federal Reserve Bank of Cleveland. [Downloadable!]
  7. Frederick van der Ploeg, 2005. "Back to Keynes?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  8. S. Rao Aiyagari, 1995. "Comments on Farmer and Guo's "the econometrics of indeterminacy: an applied study."," Staff Report 196, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  9. repec:bep:mactop:v:6:y:2007:i:3:p:1181-1181 is not listed on IDEAS
  10. Wen, Yi, 2001. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations? Comment," Working Papers 01-19, Cornell University, Center for Analytic Economics. [Downloadable!]
  11. Cooley, Thomas F. & Hansen, Gary D., 1997. "Unanticipated Money," Economics Series 42, Institute for Advanced Studies. [Downloadable!]
    Other versions:
  12. Robert E. Lucas, 2003. "Macroeconomic Priorities," American Economic Review, American Economic Association, vol. 93(1), pages 1-14, March. [Downloadable!]
  13. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," NBER Working Papers 7534, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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