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Measures of per Capita Hours and Their Implications for the Technology-Hours Debate

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  • NEVILLE FRANCIS
  • VALERIE A. RAMEY

Abstract

Structural vector autoregressions give conflicting results on the effects of technology shocks on hours. The results depend crucially on the assumed data generating process for hours per capita. We show that the standard measure of hours per capita and productivity have significant low-frequency movements that are the source of the conflicting results. Hodrick-Prescott (HP)-filtered hours per capita produce results consistent with those obtained when hours are assumed to have a unit root. We show that important sources of the low-frequency movements in the standard measure are sectoral shifts in hours and the changing age composition of the working-age population. When we control for these low-frequency components to determine the effect of technology shocks on hours using long-run restrictions we get one consistent answer: hours decline in the short run in response to a positive technology shock. We further extend the analysis by examining the effects of demographic controls on the impulse responses to investment-specific technology shocks. Our results are less conclusive. Copyright (c) 2009 The Ohio State University.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 41 (2009)
Issue (Month): 6 (09)
Pages: 1071-1097

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Handle: RePEc:mcb:jmoncb:v:41:y:2009:i:6:p:1071-1097

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Jordi Gali, 1999. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," American Economic Review, American Economic Association, vol. 89(1), pages 249-271, March.
  2. Kent D. Wall, 1976. "Interequation Constraint and the Specification of Dynamic Structure," NBER Working Papers 0119, National Bureau of Economic Research, Inc.
  3. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Jul, pages 2-13.
  4. Cooley, Thomas F. & Dwyer, Mark, 1998. "Business cycle analysis without much theory A look at structural VARs," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 57-88.
  5. Christopher J. Erceg & Luca Guerrieri, 2004. "Can Long-Run Restrictions Identify Technology Shocks?," Computing in Economics and Finance 2004 3, Society for Computational Economics.
  6. Valerie Ramey & Neville Francis, 2006. "A Century of Work and Leisure," Working Papers id:546, eSocialSciences.
  7. Craig Burnside & Martin Eichenbaum, 1994. "Factor Hoarding and the Propagation of Business Cycles Shocks," NBER Working Papers 4675, National Bureau of Economic Research, Inc.
  8. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1987. "Stochastic Trends and Economic Fluctuations," NBER Working Papers 2229, National Bureau of Economic Research, Inc.
  9. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc.
  10. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers 244, University of Rochester - Center for Economic Research (RCER).
  11. Neville Francis & Michael T. Owyang & Jennifer E. Roush & Riccardo DiCecio, 2010. "A flexible finite-horizon alternative to long-run restrictions with an application to technology shock," Working Papers 2005-024, Federal Reserve Bank of St. Louis.
  12. Neville Francis & Michael T. Owyang & Jennifer E. Roush, 2005. "A flexible finite-horizon identification of technology shocks," International Finance Discussion Papers 832, Board of Governors of the Federal Reserve System (U.S.).
  13. Matthew D. Shapiro & Mark W. Watson, 1988. "Sources of Business Cycle Fluctuations," NBER Working Papers 2589, National Bureau of Economic Research, Inc.
  14. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2005. "A critique of structural VARs using real business cycle theory," Working Papers 631, Federal Reserve Bank of Minneapolis.
  15. John Fernald, 2004. "Trend Breaks, Long Run Restrictions, and the Contractionary Effects of Technology Shocks," 2004 Meeting Papers 477, Society for Economic Dynamics.
  16. Jordi Galí & Pau Rabanal, 2004. "Technology Shocks and Aggregate Fluctuations," IMF Working Papers 04/234, International Monetary Fund.
  17. 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.
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