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Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations

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  • Jordi Gali

Abstract

Using data for the G7 countries, I estimate conditional correlations of employment and productivity, based on a decomposition of the two series into technology and non-technology components. The picture that emerges is hard to reconcile with the predictions of the standard Real Business Cycle model. For a majority of countries the following results stand out: (a) technology shocks appear to induce a negative comovement between productivity and employment, counterbalanced by a positive comovement generated by demand shocks, (b) the impulse responses show a persistent decline of employment in response to a positive technology shock, and (c) measured productivity increases temporarily in response to a positive demand shock. More generally, the pattern of economic fluctuations attributed to technology shocks seems to be largely unrelated to major postwar cyclical episodes. A simple model with monopolistic competition, sticky prices, and variable effort is shown to be able to account for the empirical findings.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5721.

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Date of creation: Aug 1996
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Publication status: published as American Economic Review (March 1999): 249-271.
Handle: RePEc:nbr:nberwo:5721

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Productivity and Unemployment
    by Jonathan Finegold in Economic Thought on 2013-01-01 20:10:31
  2. Central Bank Incompetence Makes Luddites Correct
    by Matthew Yglesias in Moneybox on 2013-03-21 14:37:33
  3. Quartz 18-->Show Me the Money!
    by ? in Confessions of a Supply-Side Liberal on 2013-05-07 07:30:20
  4. Real Business Cycles with a Human Capital Investment Sector and Endogenous Growth: Persistence, Volatility and Labor Puzzles
    by Christian Zimmermann in NEP-DGE blog on 2011-04-14 19:22:54
  5. Matching Theory and Data: Bayesian Vector Autoregression and Dynamic Stochastic General Equilibrium Models
    by Christian Zimmermann in NEP-DGE blog on 2009-09-27 01:45:04
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