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Factor Demand Linkages, Technology Shocks and the Business Cycle

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Holly, Sean
Petrella, Ivan

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Abstract

This paper argues that factor demand linkages are crucial in 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 cycles.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18120.

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Date of creation: Sep 2009
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Handle: RePEc:pra:mprapa:18120

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Related research
Keywords: Multisectors; Technology shocks; Business cycles; Long-run restrictions; Cross Sectional Dependence.;

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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