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Employment, Hours per Worker and the Business Cycle

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  • Emilio Fernandez-Corugedo
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    Abstract

    We examine the impact that technology shocks have in a trivariate VAR that includes productivity, hours worked per person and the employment ratio. These last two variables have trends that make them non-stationary. There are three results of interest. First, a technology shock reduces both hours and employment if those two variables are specified in first differences, with the response of employment being stronger than the response of hours. Second, a technology shock increases both hours and employment, when those two variables are specified in levels, although in this case the response of hours worked per person is stronger. Third, considering the possibility of changes in the trend growth rate of productivity reverses the results for the VARs with data in levels only. We also present a real business cycle model capable of replicating some of the results for hours and employment.

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    File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7B0E4193C8-5C3B-1B17-78A8-832EE18FD5BD%7D.pdf
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    Bibliographic Info

    Paper provided by Banco de México in its series Working Papers with number 2007-02.

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    Date of creation: Jan 2007
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    Handle: RePEc:bdm:wpaper:2007-02

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    Keywords: Business cycles; Employment; Hours worked; Technology shocks;

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    1. Edward C. Prescott, 2003. "Why do Americans work so much more than Europeans?," Staff Report 321, Federal Reserve Bank of Minneapolis.
    2. Charles L. Evans, 1991. "Productivity shocks and real business cycles," Working Paper Series, Macroeconomic Issues 91-22, Federal Reserve Bank of Chicago.
    3. 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.
    4. Valerie A. Ramey & Matthew D. Shapiro, 1999. "Costly Capital Reallocation and the Effects of Government Spending," NBER Working Papers 6283, National Bureau of Economic Research, Inc.
    5. Neville Francis & Valerie A. Ramey, 2006. "The Source of Historical Economic Fluctuations: An Analysis Using Long-Run Restrictions," NBER Chapters, in: NBER International Seminar on Macroeconomics 2004, pages 17-73 National Bureau of Economic Research, Inc.
    6. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc.
    7. Faust, Jon, 1998. "The robustness of identified VAR conclusions about money," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 207-244, December.
    8. Francis, Neville & Ramey, Valerie A., 2005. "Is the technology-driven real business cycle hypothesis dead? Shocks and aggregate fluctuations revisited," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1379-1399, November.
    9. Michele Boldrin & Lawrence J. Christiano & Jonas D.M. Fisher, 1999. "Habit persistence, asset returns and the business cycles," Working Paper Series WP-99-14, Federal Reserve Bank of Chicago.
    10. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
    11. Jon Faust, 1998. "The robustness of identified VAR conclusions about money," International Finance Discussion Papers 610, Board of Governors of the Federal Reserve System (U.S.).
    12. Hoover, Kevin D. & Perez, Stephen J., 1994. "Post hoc ergo propter once more an evaluation of 'does monetary policy matter?' in the spirit of James Tobin," Journal of Monetary Economics, Elsevier, vol. 34(1), pages 47-74, August.
    13. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," NBER Working Papers 7534, National Bureau of Economic Research, Inc.
    14. Jordi Galí & Pau Rabanal, 2004. "Technology Shocks and Aggregate Fluctuations," IMF Working Papers 04/234, International Monetary Fund.
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