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Technology Shocks, Non-stationary Hours and DSVAR

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  • Martial Dupaigne

    (University of Western Brittany)

  • Patrick Feve

    (Universite de Toulouse)

  • Julien Matheron

    (Banque de France)

Abstract

Structural Vector Autoregressions with a differenced specification of hours (DSVAR) suggest that productivity shocks identified using long--run restrictions lead to a persistent and significant decline in hours worked. This evidence calls into question standard business cycle models in which a positive technology shock leads to a rise in hours. In this paper we argue that such a conclusion is unwarranted because model's data and actual data are not treated symmetrically. To illustrate this problem, we estimate and test a flexible-price DSGE model with non-stationary hours using Indirect Inference on impulse responses of hours and output after technology and non-technology shocks. We find that, once augmented with a moderate amount of real frictions, the model can mimic well impulse responses obtained form a DSVAR on actual data. Using this model as a data generating process, we show that our estimation method is less subject to bias than a method that would directly compare theoretical responses with responses from the DSVAR. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2006.12.005
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 10 (2007)
Issue (Month): 2 (April)
Pages: 238-255

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Handle: RePEc:red:issued:05-128

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Keywords: DSVARs; Long-run restrictions; DSGE models; Non-stationary hours; Indirect Inference;

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References

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