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Factor Demand Linkages, Technology Shocks and the Business Cycle

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  • Holly, Sean
  • Petrella, Ivan

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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Bibliographic Info

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

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Citations

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Cited by:
  1. Cantore, Cristiano & León-Ledesma, Miguel A. & McAdam, Peter & Willman, Alpo, 2010. "Shocking stuff: technology, hours, and factor substitution," Working Paper Series, European Central Bank 1278, European Central Bank.
  2. Natalia Bailey & Sean Holly & N. Hashem Pesaran, 2013. "A Two Stage Approach to Spatiotemporal Analysis with Strong and weak cross Sectional Dependence," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1362, Faculty of Economics, University of Cambridge.
  3. Alexander Chudik & Hashem Pesaran, 2014. "Theory and Practice of GVAR Modeling," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1408, Faculty of Economics, University of Cambridge.
  4. Saldías, Martín, 2013. "A market-based approach to sector risk determinants and transmission in the euro area," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(11), pages 4534-4555.
  5. Peng, Ling & Hong, Yongmiao, 2013. "Productivity spillovers among linked sectors," China Economic Review, Elsevier, Elsevier, vol. 25(C), pages 44-61.
  6. Vasco M. CARVALHO & NIREI Makoto & SAITO Yukiko, 2014. "Supply Chain Disruptions: Evidence from the Great East Japan Earthquake," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 14035, Research Institute of Economy, Trade and Industry (RIETI).
  7. Yongsung Chang & Sunoong Hwang, 2011. "Asymmetric Phase Shifts in the U.S. Industrial Production Cycles," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 564, University of Rochester - Center for Economic Research (RCER).

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