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Factor Demand Linkages, Technology Shocks and the Business Cycle

  • Holly, S.
  • Petrella, I.

This paper argues that factor demand linkages are crucial in the transmission of both sectoral and aggregate shocks. We show this using a panel of highly disaggregated manufacturing sectors together with sectoral structural VARs. When sectoral interactions are explicitly accounted for, a contemporaneous technology shock to all manufacturing sectors implies a positive response in both output and hours at the aggregate level. Otherwise, there is a negative correlation as in much of the existing literature. Furthermore, we find that technology shocks are important drivers of business cycles.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe1001.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1001.

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Date of creation: 22 Jan 2010
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Handle: RePEc:cam:camdae:1001
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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