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Technology Shocks and Employment

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  • Fabrice Collard
  • Harris Dellas

Abstract

Recent empirical work has suggested that in response to a positive technology shock employment shows a persistent decline. This finding has raised doubts concerning the relevance of the RBC model as well as the quantitative significance of technology shocks as a source of aggregate fluctuations. We show that the standard, open economy, flexible price RBC model can easily match the negative conditional correlation between productivity and employment quite well if domestic and foreign goods are not good substitutes in the short run. The computed variance-decompositions also suggest that there is no empirical inconsistency between matching this correlation and accepting that technology shocks are the main source of variation in output while demand shocks are the main source of variation in employment. Moreover, using a low rather than a high degree of substitution does not worsen model performance along any other dimensions.

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Bibliographic Info

Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp0217.

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Date of creation: Dec 2002
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Handle: RePEc:ube:dpvwib:dp0217

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Keywords: technological shocks; employment; open economy; flexible prices; staggered prices;

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References

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  1. Collard, Fabrice & Dellas, Harris, 2002. "Exchange rate systems and macroeconomic stability," Journal of Monetary Economics, Elsevier, vol. 49(3), pages 571-599, April.
  2. V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," NBER Working Papers 7869, National Bureau of Economic Research, Inc.
  3. Susanto Basu & John Fernald & Miles Kimball, 2004. "Are Technology Improvements Contractionary?," NBER Working Papers 10592, National Bureau of Economic Research, Inc.
  4. José Angulo & N. Cressie & C. Wikle & P. Soidán & M. Bande & C. Glasbey & John Kent & Ana Militino & Michael Stein, 1998. "Discussion," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer, vol. 7(2), pages 283-285, December.
  5. Michael Dotsey, 1999. "Structure from shocks," Working Paper 99-06, Federal Reserve Bank of Richmond.
  6. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," NBER Working Papers 4493, National Bureau of Economic Research, Inc.
  7. King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007 Elsevier.
  8. Lawrence J. Christiano & Richard M. Todd, 1996. "Time to plan and aggregate fluctuations," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-27.
  9. Neville Francis & Valerie A. Ramey, 2002. "Is the Technology-Driven Real Business Cycle Hypothesis Dead?," NBER Working Papers 8726, National Bureau of Economic Research, Inc.
  10. Galí, Jordi, 2002. "New Perspectives on Monetary Policy, Inflation and the Business Cycle," CEPR Discussion Papers 3210, C.E.P.R. Discussion Papers.
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  13. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262231204, December.
  14. Unknown, 1998. "Discussion," Journal of Economic Psychology, Elsevier, vol. 19(5), pages 619-643, October.
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Cited by:
  1. Dupaigne, Martial & Fève, Patrick, 2009. "Hours Worked and Permanent Technology Shocks in Open Economies," TSE Working Papers 09-114, Toulouse School of Economics (TSE).
  2. Mandelman, Federico S. & Zanetti, Francesco, 2014. "Flexible prices, labor market frictions and the response of employment to technology shocks," Labour Economics, Elsevier, vol. 26(C), pages 94-102.
  3. Martial Dupaigne & Patrick Feve, 2009. "Technology shocks around the world," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 592-607, October.
  4. Bodenstein, Martin, 2010. "Trade elasticity of substitution and equilibrium dynamics," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1033-1059, May.
  5. Domenico J. Marchetti & Francesco Nucci, 2007. "Pricing Behavior and the Response of Hours to Productivity Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1587-1611, October.
  6. Mandelman, Federico S & Zanetti, Francesco, 2010. "Technology shocks, employment and labour market frictions," Bank of England working papers 390, Bank of England.
  7. Martin Bodenstein, 2006. "Closing open economy models," International Finance Discussion Papers 867, Board of Governors of the Federal Reserve System (U.S.).
  8. Jordi Gali & Pau Rabanal, 2004. "Technology Shocks and Aggregate Fluctuations: How Well Does the RBS Model Fit Postwar U.S. Data?," NBER Working Papers 10636, National Bureau of Economic Research, Inc.
  9. Bodenstein, Martin, 2011. "Closing large open economy models," Journal of International Economics, Elsevier, vol. 84(2), pages 160-177, July.
  10. Federico S. Mandelman & Francesco Zanetti, 2008. "Estimating general equilibrium models: an application with labour market frictions," Technical Books, Centre for Central Banking Studies, Bank of England, edition 1, number 1.
  11. Hashmat Khan & John Tsoukalas, 2005. "Technology Shocks and UK Business Cycles," Macroeconomics 0512006, EconWPA.
  12. Artuc, Erhan & Pourpourides, Panayiotis M., 2012. "R&D and aggregate fluctuations," Policy Research Working Paper Series 6017, The World Bank.

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