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Factor demand linkages, technology shocks and the business cycle

  • Sean HOLLY
  • Ivan PETRELLA

This paper argues that factor demand linkages can be important for 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 cycle.

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File URL: http://www.econ.kuleuven.be/eng/ew/discussionpapers/Dps10/Dps1026.pdf
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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces10.26.

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Date of creation: Oct 2010
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Handle: RePEc:ete:ceswps:ces10.26
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