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Unobserved Factor Utilization, Technology Shocks and Business Cycles

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Author Info
Domenico J. Marchetti () (Banca d'Italia)
francesco Nucci () (Università di Roma "La Sapienza")
Abstract

We derive a measure of technological change using firm-level panel data and controlling for imperfect competition, increasing returns and unobserved factor utilization. We show that the latter variable accounts for a relevant portion of the cyclicality of the Solow residual. Our key finding is that technological shocks result in a contraction of inputs on impact. Whilst this result is hard to reconcile with the transmission mechanism of real business cycle models, it is consistent with simple sticky-price models. Using survey information on the frequency and size of price revisions, we show that the evidence on the contractionary effects of technology shocks is indeed much stronger for firms with stickier prices.

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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 392.

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Date of creation: Feb 2001
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Handle: RePEc:bdi:wptemi:td_392_01

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Related research
Keywords: factor hoarding; technology shocks; business cycles;

Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

References listed on IDEAS
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  2. John G. Fernald & Susanto Basu, 1999. "Why is productivity procyclical? Why do we care?," International Finance Discussion Papers 638, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  3. Michael Dotsey, 1999. "The importance of systematic monetary policy for economic activity," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 41-60. [Downloadable!]
  4. Basu, Susanto & Fernald, John G., 1995. "Are apparent productive spillovers a figment of specification error?," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 165-188, August. [Downloadable!] (restricted)
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  5. Alan J. Auerbach, 1983. "Corporate Taxation in the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1983-2), pages 451-514. [Downloadable!]
  6. John Shea, 1998. "What Do Technology Shocks Do?," NBER Working Papers 6632, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993. "Labor Hoarding and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 245-73, April. [Downloadable!] (restricted)
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  12. Jim Malley & V. Anton Muscatelli & Ulrich Woitek, 2000. "Real Business Cycles of Sticky Prices? The Impact of Technology Shocks on US Manufacturing," Econometric Society World Congress 2000 Contributed Papers 1297, Econometric Society. [Downloadable!]
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  13. Caballero, Ricardo J. & Lyons, Richard K., 1990. "Internal versus external economies in European industry," European Economic Review, Elsevier, vol. 34(4), pages 805-826, June. [Downloadable!] (restricted)
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  14. Robert E. Hall, 1988. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October. [Downloadable!] (restricted)
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  21. Jeffrey Campbell, 1998. "Entry, Exit, Embodied Technology, and Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 371-408, April. [Downloadable!] (restricted)
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  22. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January. [Downloadable!] (restricted)
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  23. Dedola, Luca & Lippi, Francesco, 2005. "The monetary transmission mechanism: Evidence from the industries of five OECD countries," European Economic Review, Elsevier, vol. 49(6), pages 1543-1569, August. [Downloadable!] (restricted)
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  24. Susanto Basu & John Fernald & Miles Kimball, 1998. "Are technology improvements contractionary?," International Finance Discussion Papers 625, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  25. Sbordone, Argia M, 1997. "Interpreting the Procyclical Productivity of Manufacturing Sectors: External Effects or Labor Hoarding?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 26-45, February.
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  26. Caballero, Ricardo J. & Lyons, Richard K., 1992. "External effects in U.S. procyclical productivity," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 209-225, April. [Downloadable!] (restricted)
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  27. Susanto Basu, 1998. "Technology and business cycles; how well do standard models explain the facts?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, issue Jun, pages 207-269. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Yongsung Chang & Jay H. Hong, 2003. "On the Employment Effect of Technology: Evidence from US Manufacturing for 1958-1996," Macroeconomics 0307004, EconWPA. [Downloadable!]
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