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Identification of Technology Shocks in Structural VARs

  • Fève, Patrick
  • Guay, Alain

The usefulness of SVARs for developing empirically plausible models is actually subject to many controversies in quantitative macroeconomics. In this paper, we propose a simple alternative two step SVARs based procedure which consistently identifies and estimates the effect of permanent technology shocks on aggregate variables. Simulation experiments from a standard business cycle model show that our approach outperforms standard SVARs. The two step procedure, when applied to actual data, predicts a significant short-run decrease of hours after a technology improvement followed by a delayed and hump-shaped positive response. Additionally, the rate of inflation and the nominal interest rate displays a significant decrease after a positive technology shock.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 383.

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Date of creation: Feb 2006
Date of revision:
Publication status: Published in The Economic Journal, vol.�120, n°549, décembre 2010, p.�1284-1318.
Handle: RePEc:ide:wpaper:5360
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