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

  • Jordi Gali

The author estimate a decomposition of productivity and hours into technology and nontechnology components. Two results stand out: (1) the estimated conditional correlations of hours and productivity are negative for technology shocks, positive for nontechnology shocks; and (2) hours show a persistent decline in response to a positive technology shock. Most of the results hold for a variety of model specifications and for the majority of G7 countries. The picture that emerges is hard to reconcile with a conventional real-business-cycle interpretation of business cycles but is shown to be consistent with a simple model with monopolistic competition and sticky prices.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 89 (1999)
Issue (Month): 1 (March)
Pages: 249-271

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Handle: RePEc:aea:aecrev:v:89:y:1999:i:1:p:249-271
Note: DOI: 10.1257/aer.89.1.249
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