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Identification of Technology Shocks in Structural VARs

  • Patrick Fève
  • Alain Guay

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 CIRPEE in its series Cahiers de recherche with number 0736.

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Date of creation: 2007
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Handle: RePEc:lvl:lacicr:0736
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