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Measures of Per Capita Hours and their Implications for the Technology-Hours Debate

  • Neville Francis
  • Valerie A. Ramey

Structural vector autoregressions give conflicting results on the effects of technology shocks on hours. The results depend crucially on the assumed data generating process for hours per capita. We show that the standard measure of hours per capita has significant low frequency movements that are the source of the conflicting results. HP filtered hours per capita produce results consistent with the those obtained when hours are assumed to have a unit root. We provide an alternative measure of hours per capita that adjusts for low frequency movements in government employment, schooling, and the aging of the population. When the new measure is used to determine the effect of technology shocks on hours using long-run restrictions, both the levels and the difference specifications give the same answer: hours decline in the short-run in response to a positive technology shock.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11694.

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Date of creation: Oct 2005
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Publication status: published as Neville Francis & Valerie A. Ramey, 2009. "Measures of per Capita Hours and Their Implications for the Technology-Hours Debate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(6), pages 1071-1097, 09.
Handle: RePEc:nbr:nberwo:11694
Note: EFG LS
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  1. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2004. "A Critique of Structural VARs Using Real Business Cycle Theory," Levine's Bibliography 122247000000000518, UCLA Department of Economics.
  2. Jordi Gali, 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations," NBER Working Papers 5721, National Bureau of Economic Research, Inc.
  3. Craig Burnside & Martin Eichenbaum, 1994. "Factor Hoarding and the Propagation of Business Cycles Shocks," NBER Working Papers 4675, National Bureau of Economic Research, Inc.
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  6. Cooley, Thomas F. & Dwyer, Mark, 1998. "Business cycle analysis without much theory A look at structural VARs," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 57-88.
  7. Kent D. Wall, 1976. "Interequation Constraint and the Specification of Dynamic Structure," NBER Working Papers 0119, National Bureau of Economic Research, Inc.
  8. Galí, Jordi & Rabanal, Pau, 2004. "Technology Shocks and Aggregate Fluctuations: How Well Does the RBC Model Fit Post-War US Data?," CEPR Discussion Papers 4522, C.E.P.R. Discussion Papers.
  9. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc.
  10. Neville Francis & Valerie A. Ramey, 2002. "Is the Technology-Driven Real Business Cycle Hypothesis Dead?," NBER Working Papers 8726, National Bureau of Economic Research, Inc.
  11. Valerie A. Ramey & Neville Francis, 2009. "A Century of Work and Leisure," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(2), pages 189-224, July.
  12. Christopher J. Erceg & Luca Guerrieri, 2004. "Can Long-Run Restrictions Identify Technology Shocks?," Computing in Economics and Finance 2004 3, Society for Computational Economics.
  13. Matthew D. Shapiro & Mark W. Watson, 1988. "Sources of Business Cycle Fluctuations," NBER Working Papers 2589, National Bureau of Economic Research, Inc.
  14. Jordi Gali & Pau Rabanal, 2004. "Technology Shocks and Aggregate Fluctuations: How Well Does the RBS Model Fit Postwar U.S. Data?," NBER Working Papers 10636, National Bureau of Economic Research, Inc.
  15. Neville Francis & Michael T. Owyang & Jennifer E. Roush, 2005. "A flexible finite-horizon identification of technology shocks," International Finance Discussion Papers 832, Board of Governors of the Federal Reserve System (U.S.).
  16. Neville Francis & Michael T. Owyang & Jennifer E. Roush & Riccardo DiCecio, 2010. "A flexible finite-horizon alternative to long-run restrictions with an application to technology shock," Working Papers 2005-024, Federal Reserve Bank of St. Louis.
  17. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-34, June.
  18. John Fernald, 2004. "Trend Breaks, Long Run Restrictions, and the Contractionary Effects of Technology Shocks," 2004 Meeting Papers 477, Society for Economic Dynamics.
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