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What Does A Technology Shock Do? A VAR Analysis with Model-based Sign Restrictions

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Author Info
Dedola, Luca
Neri, Stefano

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Abstract

This Paper estimates the effects of technology shocks in VAR models of the United States, Japan and Germany, identified imposing restrictions on the sign of impulse responses. These restrictions are motivated with priors on the parameters of a class of DSGE models with both real and nominal frictions. Estimated technology shocks lead to substantial and persistent increases in labour productivity, real wages, consumption, investment and output. In contrast with most results in the VAR literature, hours worked are much more likely to increase, displaying a hump-shaped pattern. These results are shown to stem primarily from the identification strategy proposed in the Paper, which substitutes theoretical restrictions for the atheoretical assumptions on the time series properties of the data, that are the hallmark of long-run restrictions.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4537.

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Date of creation: Sep 2004
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Handle: RePEc:cpr:ceprdp:4537

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Related research
Keywords: Bayesian VAR methods; DSGE models; impulse responses; technology shocks;

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Find related papers by JEL classification:
C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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  37. Dedola, Luca & Neri, Stefano, 2004. "What Does A Technology Shock Do? A VAR Analysis with Model-based Sign Restrictions," CEPR Discussion Papers 4537, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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