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Production Stages and the Transmission of Technological Progress

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  • Louis Phaneuf
  • Nooman Rebei

Abstract

We develop and estimate a DSGE model which realistically assumes that many goods in the economy are produced through more than one stage of production. Firms produce differentiated goods at an intermediate stage and a final stage, post different prices at both stages, and face stage-specific technological change. Wage-setting households are imperfectly competitive with respect to labor skills. Intermediate-stage technology shocks explain most of short-run output fluctuations, whereas final-stage technology shocks only have a small impact. Despite the dominance of technology shocks, the model predicts a near-zero correlation between hours worked and the return to work and mildly procyclical real wages. The factors mainly responsible for these findings are an input-output linkage between firms operating at the different stages and movements in the relative price of goods. We show that, depending the source, a technology improvement may either have a contractionary or expansionary impact on employment.

Suggested Citation

  • Louis Phaneuf & Nooman Rebei, 2008. "Production Stages and the Transmission of Technological Progress," Cahiers de recherche 0802, CIRPEE.
  • Handle: RePEc:lvl:lacicr:0802
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    References listed on IDEAS

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    More about this item

    Keywords

    Business Cycles; Production Stages; Technological Change; Nominal Rigidities;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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