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Identifying technology shocks in the frequency domain

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  • Riccardo DiCecio
  • Michael T. Owyang

Abstract

Since Galí [1999], long-run restricted VARs have become the standard for identifying the effects of technology shocks. In a recent paper, Francis et al. [2008] proposed an alternative to identify technology as the shock that maximizes the forecast-error variance share of labor productivity at long horizons. In this paper, we propose a variant of the Max Share identification, which focuses on maximizing the variance share of labor productivity in the frequency domain. We consider the responses to technology shocks identified from various frequency bands. Two distinct technology shocks emerge. An expansionary shock increases productivity, output, and hours at business-cycle frequencies. The technology shock that maximizes productivity in the medium and long runs instead has clear contractionary effects on hours, while increasing output and productivity.

Suggested Citation

  • Riccardo DiCecio & Michael T. Owyang, 2010. "Identifying technology shocks in the frequency domain," Working Papers 2010-025, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2010-025
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    2. Dedola, Luca & Neri, Stefano, 2007. "What does a technology shock do? A VAR analysis with model-based sign restrictions," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 512-549, March.
    3. Jordi Gali Garreta & Pau Rabanal, 2004. "Technology Shocks and Aggregate Fluctuations; How Well Does the RBC Model Fit Postwar U.S. Data?," IMF Working Papers 04/234, International Monetary Fund.
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    5. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2007. "Assessing Structural VARs," NBER Chapters,in: NBER Macroeconomics Annual 2006, Volume 21, pages 1-106 National Bureau of Economic Research, Inc.
    6. Fabio Canova & David Lopez-Salido & Claudio Michelacci, 2010. "The effects of technology shocks on hours and output: a robustness analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(5), pages 755-773.
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    12. Gospodinov, Nikolay & Maynard, Alex & Pesavento, Elena, 2011. "Sensitivity of Impulse Responses to Small Low-Frequency Comovements: Reconciling the Evidence on the Effects of Technology Shocks," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(4), pages 455-467.
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    Keywords

    Business cycles ; Technology - Economic aspects ; Productivity;

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