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Letting Different Views about Business Cycles Compete

In: NBER Macroeconomics Annual 2009, Volume 24

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  • Paul Beaudry
  • Bernd Lucke

Abstract

There are several candidate explanations for macro-fluctuations. Two of the most common discussed sources are surprise changes in disembodied technology and monetary innovations. Another popular explanation is found under the heading of a preference or more generally a demand shock. More recently two other explanations have been advocated: surprise changes in investment specific technology and news about future technology growth. The aim of this paper is to provide a quantitative assessment of the relative merits of all these explanations by adopting a framework which allows them to compete. In particular, we propose a co-integrated SVAR approach that encompasses all 5 shocks and thereby offers a coherent evaluation of the dynamics they induce as well as their contribution to macro volatility. Our main finding is that surprise changes in technology, whether it be of the disembodied or embodied nature, account for very little of fluctuations. In contrast, expected changes in technology appear to be an important force, with preference/demand shocks and monetary shocks also playing non-negligible roles.

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This chapter was published in:

  • Daron Acemoglu & Kenneth Rogoff & Michael Woodford, 2010. "NBER Macroeconomics Annual 2009, Volume 24," NBER Books, National Bureau of Economic Research, Inc, number acem09-1, May.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11806.

    Handle: RePEc:nbr:nberch:11806

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    1. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2004. "The Response of Hours to a Technology Shock: Evidence Based on Direct Measures of Technology," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 381-395, 04/05.
    2. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2008. "Are Structural VARs with Long-Run Restrictions Useful in Developing Business Cycle Theory?," NBER Working Papers 14430, National Bureau of Economic Research, Inc.
    3. Jordi Gali, 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations," NBER Working Papers 5721, National Bureau of Economic Research, Inc.
    4. Beaudry, Paul & Portier, Franck, 2003. "Stock Prices, News and Economic Fluctuations," CEPR Discussion Papers 3844, C.E.P.R. Discussion Papers.
    5. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June.
    6. Lucke, Bernd, 2010. "Identification and overidentification in SVECMs," Economics Letters, Elsevier, vol. 108(3), pages 318-321, September.
    7. Fabio C. Bagliano & Carlo A. Favero, . "Measuring Monetary Policy with VAR Models: an Evaluation," Working Papers 132, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    8. Jonas D. M. Fisher, 2006. "The Dynamic Effects of Neutral and Investment-Specific Technology Shocks," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 413-451, June.
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