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Factor Demand Linkages, Technology Shocks and the Business Cycle

  • Holly, Sean
  • Petrella, Ivan

This paper argues that factor demand linkages are crucial in the transmission of both sectoral and aggregate shocks. We show this using a panel of highly disaggregated manufacturing sectors together with sectoral structural VARs. When sectoral interactions are explicitly accounted for, a contemporaneous technology shock to all manufacturing sectors implies a positive response in both output and hours at the aggregate level. Otherwise, there is a negative correlation as in much of the existing literature. Furthermore, we find that technology shocks are important drivers of business cycles.

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File URL: http://mpra.ub.uni-muenchen.de/18120/1/MPRA_paper_18120.pdf
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File URL: http://mpra.ub.uni-muenchen.de/25672/1/MPRA_paper_25672.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18120.

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Date of creation: Sep 2009
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Handle: RePEc:pra:mprapa:18120
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