IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper

What does a technology shock do? A VAR analysis with model-based sign restrictions

  • Luca Dedola

    ()

    (European Central Bank, Research Department)

  • Stefano Neri

    ()

    (Bank of Italy, Research Department)

This paper estimates the effects of technology shocks in VAR models of the U.S., identified by imposing restrictions on the sign of impulse responses. These restrictions are consistent with the implications of a popular class of DSGE models, with both real and nominal frictions, and with sufficiently wide ranges for their parameters. This identification strategy thus substitutes theoretically-motivated restrictions for the atheoretical assumptions on the time-series properties of the data that are key to long-run restrictions. Stochastic technology improvements persistently increase real wages, consumption, investment and output in the data; hours worked are very likely to increase, displaying a hump-shaped pattern. Contrary to most of the related VAR evidence, results are not sensitive to a number of specification assumptions, including those on the stationarity properties of variables.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2006/2006-0607/tema_607.pdf
Download Restriction: no

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 607.

as
in new window

Length:
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:bdi:wptemi:td_607_06
Contact details of provider: Postal:
Via Nazionale, 91 - 00184 Roma

Web page: http://www.bancaditalia.it

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Marvin J. Barth III & Valerie A. Ramey, 2000. "The Cost Channel of Monetary Transmission," NBER Working Papers 7675, National Bureau of Economic Research, Inc.
  2. Galí, Jordi, 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," CEPR Discussion Papers 1499, C.E.P.R. Discussion Papers.
  3. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc.
  4. Jonas D. M. Fisher, 2002. "Technology shocks matter," Working Paper Series WP-02-14, Federal Reserve Bank of Chicago.
  5. Christopher J. Erceg & Luca Guerrieri & Christopher J. Gust, 2004. "Can long-run restrictions identify technology shocks?," International Finance Discussion Papers 792, Board of Governors of the Federal Reserve System (U.S.).
  6. Lawrence J. Christiano & Martin Eichenbaum & Robert J. Vigfusson, 2003. "What happens after a technology shock?," International Finance Discussion Papers 768, Board of Governors of the Federal Reserve System (U.S.).
  7. Galí, Jordi & Rabanal, Pau, 2004. "Technology Shocks and Aggregate Fluctuations: How Well Does the RBC Model Fit Post-War US Data?," CEPR Discussion Papers 4522, C.E.P.R. Discussion Papers.
  8. 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.
  9. John Shea, 1998. "What Do Technology Shocks Do?," NBER Working Papers 6632, National Bureau of Economic Research, Inc.
  10. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
  11. Jonas D. M. Fisher, 2006. "The Dynamic Effects of Neutral and Investment-Specific Technology Shocks," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 413-451, June.
  12. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  13. Jesus Fernandez-Villaverde & Juan F. Rubio-Ramirez, 2004. "Estimating Dynamic Equilibrium Economies: Linear versus Nonlinear Likelihood," PIER Working Paper Archive 04-005, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  14. Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1131-1159, September.
  15. Chari, V.V. & Kehoe, Patrick J. & McGrattan, Ellen R., 2008. "Are structural VARs with long-run restrictions useful in developing business cycle theory?," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1337-1352, November.
  16. Leamer, Edward E, 1991. "To Criticize the Critics: An Objective Bayesian Analysis of Stochastic Trends: Comment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(4), pages 371-73, Oct.-Dec..
  17. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2004. "The Response of Hours to a Technology Shock: Evidence Based on Direct Measures of Technology," NBER Working Papers 10254, National Bureau of Economic Research, Inc.
  18. Uhlig, Harald, 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," CEPR Discussion Papers 2137, C.E.P.R. Discussion Papers.
  19. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1998. "The Role of Investment-Specific Technological Change in the Business Cycle," RCER Working Papers 449, University of Rochester - Center for Economic Research (RCER).
  20. Dedola, Luca & Neri, Stefano, 2004. "What Does A Technology Shock Do? A VAR Analysis with Model-based Sign Restrictions," CEPR Discussion Papers 4537, C.E.P.R. Discussion Papers.
  21. 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.
  22. Phillips, P C B, 1991. "To Criticize the Critics: An Objective Bayesian Analysis of Stochastic Trends," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(4), pages 333-64, Oct.-Dec..
  23. Christopher A. Sims & Tao Zha, 2004. "Were there regime switches in U.S. monetary policy?," FRB Atlanta Working Paper 2004-14, Federal Reserve Bank of Atlanta.
  24. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc.
  25. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-50, June.
  26. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  27. Thomas Lubik & Frank Schorfheide, 2002. "Testing for Indeterminacy:An Application to U.S. Monetary Policy," Economics Working Paper Archive 480, The Johns Hopkins University,Department of Economics, revised Jun 2003.
  28. Timothy Cogley & Thomas J. Sargent, 2005. "Drift and Volatilities: Monetary Policies and Outcomes in the Post WWII U.S," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 262-302, April.
  29. Koop, Gary & Steel, Mark F J, 1991. "To Criticize the Critics: An Objective Bayesian Analysis of Stochastic Trends: A Comment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(4), pages 365-70, Oct.-Dec..
  30. Kydland, Finn E., 1984. "Labor-force heterogeneity and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 173-208, January.
  31. Peersman, Gert & Straub, Roland, 2004. "Technology shocks and robust sign restrictions in a euro area SVAR," Working Paper Series 0373, European Central Bank.
  32. Canova, Fabio, 2002. "Validating Monetary DSGE Models through VARs," CEPR Discussion Papers 3442, C.E.P.R. Discussion Papers.
  33. Poirier, Dale J, 1991. "To Criticize the Critics: An Objective Bayesian Analysis of Stochastic Trends: A Comment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(4), pages 381-86, Oct.-Dec..
  34. Susanto Basu & John Fernald & Miles Kimball, 2002. "Are Technology Improvements Contractionary?," Harvard Institute of Economic Research Working Papers 1986, Harvard - Institute of Economic Research.
  35. Jon Faust, 1998. "The robustness of identified VAR conclusions about money," International Finance Discussion Papers 610, Board of Governors of the Federal Reserve System (U.S.).
  36. Ellen R. McGrattan, 2004. "Comment on Gali and Rabanal's "Technology shocks and aggregate fluctuations: how well does the RBC model fit postwar U.S. data?"," Staff Report 338, Federal Reserve Bank of Minneapolis.
  37. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 869-902.
  38. Ramey, Valerie A & Francis, Neville, 2002. "Is The Technology-Driven Real Business Cycle Hypothesis Dead? Shocks and Aggregate Fluctuations Revisted," University of California at San Diego, Economics Working Paper Series qt6x80k3nx, Department of Economics, UC San Diego.
  39. Harald Uhlig, 2004. "Do Technology Shocks Lead to a Fall in Total Hours Worked?," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 361-371, 04/05.
  40. Michael Dotsey, 1999. "The importance of systematic monetary policy for economic activity," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 41-60.
  41. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
  42. Mark Bils & Peter J. Klenow, 2002. "Some Evidence on the Importance of Sticky Prices," NBER Working Papers 9069, National Bureau of Economic Research, Inc.
  43. Julio J. Rotemberg, 2003. "Stochastic Technical Progress, Smooth Trends, and Nearly Distinct Business Cycles," American Economic Review, American Economic Association, vol. 93(5), pages 1543-1559, December.
  44. Ellen McGrattan & V. V. Chari & Patrick Kehoe, 2005. "Are Structural VARs Useful Guides for Developing Business Cycle Theories?," 2005 Meeting Papers 664, Society for Economic Dynamics.
  45. Robert J. Vigfusson, 2004. "The delayed response to a technology shock: a flexible price explanation," International Finance Discussion Papers 810, Board of Governors of the Federal Reserve System (U.S.).
  46. Finn E. Kydland, 1993. "Business cycles and aggregate labor-market fluctuations," Working Paper 9312, Federal Reserve Bank of Cleveland.
  47. 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.
  48. Cooley, Thomas F. & Dwyer, Mark, 1998. "Business cycle analysis without much theory A look at structural VARs," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 57-88.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bdi:wptemi:td_607_06. 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: ()

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.