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Factor Demand Linkages, Technology Shocks, and the Business Cycle

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  • Sean Holly

    (University of Cambridge and Centre for International Macroeconomics and Finance)

  • Ivan Petrella

    (Birkbeck College, University of London)

Abstract

This paper argues that factor demand linkages can be important for the transmission of both sectoral and aggregate shocks. We show this using a panel of highly disaggregated manufacturing sectors together with sectoral structural VARs. When sectoral interactions are explicitly accounted for, a contemporaneous technology shock to all manufacturing sectors implies a positive response in both output and hours at the aggregate level. Otherwise there is a negative correlation, as in much of the existing literature. Furthermore, we find that technology shocks are important drivers of the business cycle. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 94 (2012)
Issue (Month): 4 (November)
Pages: 948-963

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Handle: RePEc:tpr:restat:v:94:y:2012:i:4:p:948-963

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Keywords: factor demand linkages; technology shocks; business cycles; manufacturing;

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Citations

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Cited by:
  1. Alexander Chudik & Hashem Pesaran, 2014. "Theory and Practice of GVAR Modeling," Cambridge Working Papers in Economics 1408, Faculty of Economics, University of Cambridge.
  2. Chudik, Alexander & Pesaran, M. Hashem, 2014. "Theory and practice of GVAR modeling," Globalization and Monetary Policy Institute Working Paper 180, Federal Reserve Bank of Dallas.
  3. Natalia Bailey & Sean Holly & N. Hashem Pesaran, 2013. "A Two Stage Approach to Spatiotemporal Analysis with Strong and weak cross Sectional Dependence," Cambridge Working Papers in Economics 1362, Faculty of Economics, University of Cambridge.
  4. Yongsung Chang & Sunoong Hwang, 2011. "Asymmetric Phase Shifts in the U.S. Industrial Production Cycles," RCER Working Papers 564, University of Rochester - Center for Economic Research (RCER).
  5. Peng, Ling & Hong, Yongmiao, 2013. "Productivity spillovers among linked sectors," China Economic Review, Elsevier, vol. 25(C), pages 44-61.
  6. Cantore, Cristiano & León-Ledesma, Miguel A. & McAdam, Peter & Willman, Alpo, 2010. "Shocking stuff: technology, hours, and factor substitution," Working Paper Series 1278, European Central Bank.
  7. Vasco M. CARVALHO & NIREI Makoto & SAITO Yukiko, 2014. "Supply Chain Disruptions: Evidence from the Great East Japan Earthquake," Discussion papers 14035, Research Institute of Economy, Trade and Industry (RIETI).
  8. Saldías, Martín, 2013. "A market-based approach to sector risk determinants and transmission in the euro area," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4534-4555.

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