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Technology Shocks, Non-stationary Hours and DSVAR

Author

Listed:
  • Martial Dupaigne

    (University of Western Brittany)

  • Patrick Feve

    (Universite de Toulouse)

  • Julien Matheron

    (Banque de France)

Abstract

Structural Vector Autoregressions with a differenced specification of hours (DSVAR) suggest that productivity shocks identified using long--run restrictions lead to a persistent and significant decline in hours worked. This evidence calls into question standard business cycle models in which a positive technology shock leads to a rise in hours. In this paper we argue that such a conclusion is unwarranted because model's data and actual data are not treated symmetrically. To illustrate this problem, we estimate and test a flexible-price DSGE model with non-stationary hours using Indirect Inference on impulse responses of hours and output after technology and non-technology shocks. We find that, once augmented with a moderate amount of real frictions, the model can mimic well impulse responses obtained form a DSVAR on actual data. Using this model as a data generating process, we show that our estimation method is less subject to bias than a method that would directly compare theoretical responses with responses from the DSVAR. (Copyright: Elsevier)

Suggested Citation

  • Martial Dupaigne & Patrick Feve & Julien Matheron, 2007. "Technology Shocks, Non-stationary Hours and DSVAR," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(2), pages 238-255, April.
  • Handle: RePEc:red:issued:05-128
    DOI: 10.1016/j.red.2006.12.005
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    DSVARs; Long-run restrictions; DSGE models; Non-stationary hours; Indirect Inference;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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