IDEAS home Printed from https://ideas.repec.org/a/eee/moneco/v52y2005i8p1379-1399.html
   My bibliography  Save this article

Is the technology-driven real business cycle hypothesis dead? Shocks and aggregate fluctuations revisited

Author

Listed:
  • Francis, Neville
  • Ramey, Valerie A.

Abstract

In this paper we re-examine the recent evidence that technology shocks do not produce business cycle patterns in the data. We first extend Gali's (1999) work, which uses long-run restrictions to identify technology shocks, by examining whether the identified shocks can be plausibly interpreted as technology shocks. We do this in three ways. First, we derive additional long-run restrictions and use them as tests of overidentification. Second, we compare the qualitative implications from the model with the impulse responses of variables such as wages and consumption. Third, we test whether some standard "exogenous" variables predict the shock variables. We find that ilshocks, military build-ups, and Romer dates do not predict the sholck labeled "technology." We then show ways in which a standard DGE model can be modified to fit Gali's finding that a positive technology shock leads to lower labor input. Finally, we re-examine the properties of the other key shock to the system.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Francis, Neville & Ramey, Valerie A., 2005. "Is the technology-driven real business cycle hypothesis dead? Shocks and aggregate fluctuations revisited," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1379-1399, November.
  • Handle: RePEc:eee:moneco:v:52:y:2005:i:8:p:1379-1399
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304-3932(05)00113-3
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. Miles S. Kimball & John G. Fernald & Susanto Basu, 2006. "Are Technology Improvements Contractionary?," American Economic Review, American Economic Association, vol. 96(5), pages 1418-1448, December.
    3. Gali, Jordi & Lopez-Salido, J. David & Valles, Javier, 2003. "Technology shocks and monetary policy: assessing the Fed's performance," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 723-743, May.
    4. Ahmed, Shaghil & Yoo, Byung Sam, 1995. "Fiscal Trends in Real Economic Aggregates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 985-1001, November.
    5. Jordi Gali, 1999. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," American Economic Review, American Economic Association, vol. 89(1), pages 249-271, March.
    6. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
    7. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April.
    8. King, Robert G. & Plosser, Charles I. & Stock, James H. & Watson, Mark W., 1991. "Stochastic Trends and Economic Fluctuations," American Economic Review, American Economic Association, vol. 81(4), pages 819-840, September.
    9. Jones, John Bailey, 2002. "Has fiscal policy helped stabilize the postwar U.S. economy?," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 709-746, May.
    10. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
    11. Evans, Charles L., 1992. "Productivity shocks and real business cycles," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 191-208, April.
    12. Beaudry, Paul & Guay, Alain, 1996. "What do interest rates reveal about the functioning of real business cycle models?," Journal of Economic Dynamics and Control, Elsevier, vol. 20(9-10), pages 1661-1682.
    13. Matthew Shapiro & Mark Watson, 1988. "Sources of Business Cycles Fluctuations," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 111-156, National Bureau of Economic Research, Inc.
    14. 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.
    15. Burnside, Craig & Eichenbaum, Martin & Fisher, Jonas D. M., 2004. "Fiscal shocks and their consequences," Journal of Economic Theory, Elsevier, vol. 115(1), pages 89-117, March.
    16. Michael Dotsey, 2002. "Structure from shocks," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 37-47.
    17. Lawrence J. Christiano & Michele Boldrin & Jonas D. M. Fisher, 2001. "Habit Persistence, Asset Returns, and the Business Cycle," American Economic Review, American Economic Association, vol. 91(1), pages 149-166, March.
    18. Neville Francis & Valerie A. Ramey, 2006. "The Source of Historical Economic Fluctuations: An Analysis Using Long-Run Restrictions," NBER Chapters, in: NBER International Seminar on Macroeconomics 2004, pages 17-73, National Bureau of Economic Research, Inc.
    19. John Shea, 1999. "What Do Technology Shocks Do?," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 275-322, National Bureau of Economic Research, Inc.
    20. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-947, October.
    21. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc.
    22. Hoover, Kevin D. & Perez, Stephen J., 1994. "Post hoc ergo propter once more an evaluation of 'does monetary policy matter?' in the spirit of James Tobin," Journal of Monetary Economics, Elsevier, vol. 34(1), pages 47-74, August.
    23. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-334, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Ramey, V.A., 2016. "Macroeconomic Shocks and Their Propagation," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 71-162, Elsevier.
    3. 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.
    4. S. Rebelo., 2010. "Real Business Cycle Models: Past, Present, and Future," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 10.
    5. Yongsung Chang & Jay H. Hong, 2006. "Do Technological Improvements in the Manufacturing Sector Raise or Lower Employment?," American Economic Review, American Economic Association, vol. 96(1), pages 352-368, March.
    6. Neville Francis & Michael T. Owyang & Athena T. Theodorou, 2003. "The use of long-run restrictions for the identification of technology shocks," Review, Federal Reserve Bank of St. Louis, vol. 85(Nov), pages 53-66.
    7. Dufourt, Frederic, 2005. "Demand and productivity components of business cycles: Estimates and implications," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1089-1105, September.
    8. Emilio Fernandez-Corugedo, 2007. "Employment, Hours per Worker and the Business Cycle," Working Papers 2007-02, Banco de México.
    9. Holly, S. & Petrella, I., 2008. "Factor demand linkages and the business cycle: Interpreting aggregate fluctuations as sectoral fluctuations," Cambridge Working Papers in Economics 0827, Faculty of Economics, University of Cambridge.
    10. John G. Fernald, 2005. "Trend breaks, long-run restrictions, and the contractionary effects of technology improvements," Working Paper Series 2005-21, Federal Reserve Bank of San Francisco.
    11. Jonas D. M. Fisher, 2002. "Technology shocks matter," Working Paper Series WP-02-14, Federal Reserve Bank of Chicago.
    12. 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.
    13. Francesco Busato & Alessandro Girardi & Amadeo Argentiero, 2005. "Technology and non-technology shocks in a two-sector economy," Economics Working Papers 2005-11, Department of Economics and Business Economics, Aarhus University.
    14. Hashmat Khan & John Tsoukalas, 2005. "Technology Shocks and UK Business Cycles," Macroeconomics 0512006, University Library of Munich, Germany.
    15. Ghent, Andra, 2006. "Comparing Models of Macroeconomic Fluctuations: How Big Are the Differences?," MPRA Paper 180, University Library of Munich, Germany.
    16. Evans, Charles L. & Marshall, David A., 2007. "Economic determinants of the nominal treasury yield curve," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1986-2003, October.
    17. Mertens, Elmar, 2010. "Structural shocks and the comovements between output and interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1171-1186, June.
    18. G. Peersman & R. Straub, 2006. "Putting the New Keynesian Model to a Test," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/375, Ghent University, Faculty of Economics and Business Administration.
    19. Elmar Mertens, 2005. "Puzzling Comovements between Output and Interest Rates? Multiple Shocks are the Answer," Working Papers 05.05, Swiss National Bank, Study Center Gerzensee.
    20. Ghent, Andra C., 2009. "Comparing DSGE-VAR forecasting models: How big are the differences?," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 864-882, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:52:y:2005:i:8:p:1379-1399. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/inca/505566 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Nithya Sathishkumar (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505566 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.