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Identification of Technology Shocks in Structural Vars

  • Patrick Fève
  • Alain Guay

The usefulness of SVARs for developing empirically plausible models is actually subject to controversies in macroeconomics. We propose a two-step SVARs-based procedure which consistently estimates the effect of permanent technology shocks on aggregate variables. Simulation experiments from a standard business cycle model and a sticky prices model show that our approach outperforms standard SVARs. The two-step procedure, when applied to actual data, predicts a significant short-run decrease of hours after a technology improvement followed by a hump-shaped positive response. Additionally, the rate of inflation and the nominal interest rate displays a significant decrease after this shock. Copyright (C) The Author(s). Journal compilation (C) Royal Economic Society 2009.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 120 (2010)
Issue (Month): 549 (December)
Pages: 1284-1318

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Handle: RePEc:ecj:econjl:v:120:y:2010:i:549:p:1284-1318
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