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Business cycle non-linearities and productivity shocks

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  • Paolo Piselli

    () (Banca d'Italia)

Abstract

The recent empirical evidence documenting the presence of asymmetries in business cycles represents a challenge for the standard equilibrium models of real business cycle. These models successfully explain most first and second moments of the actual time series, but cannot replicate non-linear features of the data, unless a non-linear innovation is introduced. This paper aims at investigating the possible non-linearity in the technology shock, the basic innovation in Real Business Cycle models. In order to measure the unobservable technology shock, we derive some alternative measures of total factor productivity such as revenue-based and cost-based Solow residual and we also control for cyclical factor utilisation. We test for non-linearities and model a nonlinear SETAR model for the productivity shock as a natural extension of the autoregressive linear process, the standard way of representing technology shocks. Our findings suggest that, although the standard Solow residual turns out to be linear, the other measures of technology shock appear non-linear, as soon as non-technological cyclical components are ruled out.

Suggested Citation

  • Paolo Piselli, 2004. "Business cycle non-linearities and productivity shocks," Temi di discussione (Economic working papers) 516, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_516_04
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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2004/2004-0516/tema_516.pdf
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    Citations

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    Cited by:

    1. Sella Lisa, 2008. "Old and New Spectral Techniques for Economic Time Series," Department of Economics and Statistics Cognetti de Martiis. Working Papers 200809, University of Turin.
    2. Almeida, Pedro Cameira de & Fuinhas, José Alberto & Marques, António Cardoso, 2011. "A assimetria dos ciclos económicos: Evidência internacional usando o teste triples
      [The asymmetry of business cycles: International evidence using triples test]
      ," MPRA Paper 35208, University Library of Munich, Germany.

    More about this item

    Keywords

    Solow residual; technology shock; non-linear models; linearity test;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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