Redistributive shocks and productivity shocks

José-Víctor Ríos-Rull and Raul Santaeulalia-Llopis ()

Journal of Monetary Economics, 2010, vol. 57, issue 8, 931-948

Abstract: A productivity innovation reduces labor share at impact, making it countercyclical; it subsequently produces a long-lasting increase that peaks five years later at a level larger in absolute terms than the initial drop, before slowly returning to average, i.e., labor share overshoots. We estimate a bivariate shock process to the production function that under competition in factor markets accounts for this overshooting. We pose this process in an otherwise standard real business cycle economy, and we find that the contribution of productivity innovations to the variance of hours is 1% of that in the standard RBC model.

Date: 2010
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