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Contractionary Effects of Supply Shocks: Evidence and Theoretical Interpretation

  • Francesco Giuli
  • Massimiliano Tancioni

The debate on the response of hours worked after productivity improvements is still an open issue in the theoretical and empirical literature. In this work we show that, once conditional correlations are taken into account, both hours and investment decline temporarily following a positive technology shock. We fiÂ…rst provide evidence about this apparent puzzle employing weakly identiÂ…ed SVECs. We then set-up and estimate a sticky price/wage DSGE model in which the presence of strategic complementarities in pricesetting lowers the slope of the New Keynesian Phillips curve, and show that the posterior impulse responses are consistent with the SVEC-based evidence.

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Paper provided by University of Rome La Sapienza, Department of Public Economics in its series Working Papers with number 131.

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Length: 44
Date of creation: Mar 2010
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Handle: RePEc:sap:wpaper:wp131
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