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Anticipated Technology Shocks: A Re-Evaluation Using Cointegrated Technologies

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  • Joel Wagner

Abstract

Two approaches have been taken in the literature to evaluate the relative importance of news shocks as a source of business cycle volatility. The first is an empirical approach that performs a structural vector autoregression to assess the relative importance of news shocks, while the second is a structural-model-based approach. The first approach suggests that anticipated technology shocks are an important source of business cycle volatility; the second finds anticipated technology shocks are incapable of generating any business cycle volatility. This paper challenges the latter conclusion by presenting a structural news shock model adapted to reproduce the cointegrating relationship between total factor productivity and the relative price of investment. With cointegrated neutral and investment-specific technology, anticipated shocks to the common stochastic trend explain approximately 22%, 32%, 34% and 20% of the variance of output, investment, hours and consumption in the United States, respectively, reconciling the discrepancy between theory and data.

Suggested Citation

  • Joel Wagner, 2017. "Anticipated Technology Shocks: A Re-Evaluation Using Cointegrated Technologies," Staff Working Papers 17-11, Bank of Canada.
  • Handle: RePEc:bca:bocawp:17-11
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    References listed on IDEAS

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    1. Christopher Gunn & Alok Johri, 2011. "News and knowledge capital," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 92-101, January.
    2. Nadav Ben Zeev & Hashmat Khan, 2015. "Investmentā€Specific News Shocks and U.S. Business Cycles," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(7), pages 1443-1464, October.
    3. Ippei Fujiwara & Yasuo Hirose & Mototsugu Shintani, 2011. "Can News Be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(1), pages 1-29, February.
    4. Jonas D. M. Fisher, 2010. "Comment on "Letting Different Views about Business Cycles Compete"," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 457-474, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Nadav Ben Zeev, 2019. "Is There A Single Shock That Drives The Majority Of Business Cycle Fluctuations?," Working Papers 1906, Ben-Gurion University of the Negev, Department of Economics.

    More about this item

    Keywords

    Business fluctuations and cycles; Productivity;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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