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Factor demand linkages, technology shocks and the business cycle

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  • Sean HOLLY
  • Ivan PETRELLA

Abstract

This paper argues that factor demand linkages can be important for 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 cycle.

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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces10.26.

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Date of creation: Oct 2010
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Handle: RePEc:ete:ceswps:ces10.26

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Citations

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Cited by:
  1. Natalia Bailey & Sean Holly & M. Hashem Pesaran, 2014. "A Two Stage Approach to Spatiotemporal Analysis with Strong and Weak Cross-Sectional Dependence," CESifo Working Paper Series 4592, CESifo Group Munich.
  2. Peng, Ling & Hong, Yongmiao, 2013. "Productivity spillovers among linked sectors," China Economic Review, Elsevier, vol. 25(C), pages 44-61.
  3. Cantore, Cristiano & León-Ledesma, Miguel A. & McAdam, Peter & Willman, Alpo, 2010. "Shocking stuff: technology, hours, and factor substitution," Working Paper Series 1278, European Central Bank.
  4. Alexander Chudik & M. Hashem Pesaran, 2014. "Theory and Practice of GVAR Modeling," CESifo Working Paper Series 4807, CESifo Group Munich.
  5. 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).
  6. Saldías, Martín, 2013. "A market-based approach to sector risk determinants and transmission in the euro area," Working Paper Series 1574, European Central Bank.
  7. Alexander Chudik & Hashem Pesaran, 2014. "Theory and Practice of GVAR Modeling," Cambridge Working Papers in Economics 1408, Faculty of Economics, University of Cambridge.

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