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Factor Demand Linkages, Technology Shocks and the Business Cycle

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  • Holly, S.
  • Petrella, I.

Abstract

This paper argues that factor demand linkages are crucial in 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 business cycles.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1001.

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Date of creation: 22 Jan 2010
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Handle: RePEc:cam:camdae:1001

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Web page: http://www.econ.cam.ac.uk/index.htm

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Keywords: Multisectors; Technology shocks; Business cycles; Long-run restrictions; Cross Sectional Dependence;

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References

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Cited by:
  1. Cristiano Cantore & Miguel León-Ledesma & Peter McAdam & Alpo Willman, 2014. "Shocking Stuff: Technology, Hours, And Factor Substitution," Journal of the European Economic Association, European Economic Association, vol. 12(1), pages 108-128, 02.
  2. Peng, Ling & Hong, Yongmiao, 2013. "Productivity spillovers among linked sectors," China Economic Review, Elsevier, vol. 25(C), pages 44-61.
  3. Alexander Chudik & M. Hashem Pesaran, 2014. "Theory and Practice of GVAR Modeling," CESifo Working Paper Series 4807, CESifo Group Munich.
  4. 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.
  5. Saldías, Martín, 2013. "A market-based approach to sector risk determinants and transmission in the euro area," Working Paper Series 1574, European Central Bank.
  6. Alexander Chudik & Hashem Pesaran, 2014. "Theory and Practice of GVAR Modeling," Cambridge Working Papers in Economics 1408, Faculty of Economics, University of Cambridge.
  7. 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).

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