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A flexible finite-horizon alternative to long-run restrictions with an application to technology shock

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  • Neville Francis
  • Michael T. Owyang
  • Jennifer E. Roush
  • Riccardo DiCecio

Abstract

Recent studies using long-run restrictions question the validity of the technology-driven real business cycle hypothesis. We propose an alternative identi cation that maximizes the contribution of technology shocks to the forecast-error variance of labor productivity at a long, but finite, horizon. In small-sample Monte Carlo experiments, our identification outperforms standard long-run restrictions by significantly reducing the bias in the short-run impulse responses and raising their estimation precision. Unlike its long-run restriction counterpart, when our Max Share identification technique is applied to U.S. data it delivers the robust result that hours worked responds negatively to positive technology shocks. ; Earlier title: A flexible finite-horizon identification of technology shocks

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2005-024.

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Date of creation: 2010
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Handle: RePEc:fip:fedlwp:2005-024

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Keywords: Time-series analysis ; Business cycles;

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  2. Neville Francis & Michael T. Owyang & Athena T. Theodorou, 2005. "What explains the varying monetary response to technology shocks in G-7 countries?," Working Papers 2004-002, Federal Reserve Bank of St. Louis.
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  23. 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.).
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