Understanding the puzzling effects of technology shocks
AbstractThe research led by Gali (AER 1999) and Basu et al. (AER 2006) raises two important questions regarding the validity of the RBC theory: (i) How important are technology shocks in explaining the business cycle? (ii) Do impulse responses to technology shocks found in the data reject the assumption of flexible prices? This paper argues that the conditional impulse responses of the U.S. economy to technology shocks are not grounds to reject the notion that technology shocks are the main driving force of the business cycle and the assumption of flexible prices, in contrary to the conclusions reached by the literature.
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Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2007-018.
Date of creation: 2007
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-23 (All new papers)
- NEP-BEC-2007-06-23 (Business Economics)
- NEP-CBA-2007-06-23 (Central Banking)
- NEP-DGE-2007-06-23 (Dynamic General Equilibrium)
- NEP-MAC-2007-06-23 (Macroeconomics)
- NEP-TID-2007-06-23 (Technology & Industrial Dynamics)
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- Federico S. Mandelman & Francesco Zanetti, 2008.
"Technology shocks, employment, and labor market frictions,"
2008-10, Federal Reserve Bank of Atlanta.
- Mandelman, Federico S & Zanetti, Francesco, 2010. "Technology shocks, employment and labour market frictions," Bank of England working papers 390, Bank of England.
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