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

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Listed author(s):
  • Luca Dedola

    ()

    (European Central Bank, Research Department)

  • Stefano Neri

    ()

    (Bank of Italy, Research Department)

Abstract

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.

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File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2006/2006-0607/tema_607.pdf
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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 607.

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Date of creation: Dec 2006
Handle: RePEc:bdi:wptemi:td_607_06
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Keywords: technology shocks; DSGE models; bayesian VAR methods; identification;

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Find related papers by JEL classification:
  • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
  • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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