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Prince-setting, monetary policy and the contractionary effects of productivity improvements

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  • Francesco Giuli
  • Massimiliano Tancioni

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Abstract

This paper adds to the large literature on the e¤ects of technology shocks empirically and theoretically. Using a SVEC model, we �rst show that not only hours but also investment decline temporarily following a technology improvement. This result is robust with respect to important data and identi�cation issues addressed in the literature. We then show that the negative response of inputs is consistent with an estimated monetary DSGE model in which the presence of strategic complementarity in price setting, in addition to nominal rigidities, lowers the sensitivity of prices to marginal costs, and monetary policy does not fully accommodate the shock.

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Bibliographic Info

Paper provided by Department of Economics - University Roma Tre in its series Departmental Working Papers of Economics - University 'Roma Tre' with number 0161.

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Length: 39
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:rtr:wpaper:0161

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Keywords: Technology shocks; Inputs dynamics; Structural Vector Error Correction model; New-Keynesian DSGE model; Bayesian inference;

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