A flexible finite-horizon alternative to long-run restrictions with an application to technology shock
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 shocksDownload Info
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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2005-024.Length:
Date of creation: 2010
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Handle: RePEc:fip:fedlwp:2005-024
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Keywords: Time-series analysis ; Business cycles;This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-14 (All new papers)
- NEP-MAC-2005-06-14 (Macroeconomics)
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Citations
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