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Long-Run Productivity Shifts and Cyclical Fluctuations: Evidence for Italy

  • Silvia Sgherri

Using unobserved stochastic components and Kalman filter techniques, the paper assesses the relative importance of transitory and permanent shifts in Italian real GDP within a production function framework. Evidence suggests that the increase in hours worked that has accompanied pension and labor market reforms accounts for the bulk of low-frequency variation in growth, but points to factor utilization as the main driver of business cycle fluctuations. In contrast with the predictions of standard Real Business Cycle models, a positive shock to the underlying rate of total factor productivity growth generates a slight decline in hours, whereas the response of output to the same shock is found to be positive.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/228.

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Length: 37
Date of creation: 01 Dec 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/228
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