Total factor productivity and the propagation of shocks: Empirical evidence and implications for the business cycle

Eric Mayer, Sebastian Rüth and Johann Scharler

No 92, W.E.P. - Würzburg Economic Papers from University of Würzburg, Department of Economics

Abstract: Using a sign restrictions approach, we document that total factor productivity (TFP) moves counter-cyclically in the aftermath of supply and demand side shocks. To interpret our empirical results, we conduct counter-factual simulations, based on a New Keynesian DSGE model in which TFP fluctuates endogenously due to time-varying labor effort. The simulations show that the decline in the output gap, following an adverse shock, is dampened by the endogenously improving TFP as long as the nominal interest rate remains strictly positive during the downturn. If the economy hits the zero lower bound, the decline in the output gap is amplified when TFP improves endogenously.

Keywords: TFP; labor effort; zero lower bound (search for similar items in EconPapers)
JEL-codes: E24 E30 E32 E40 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-dge, nep-eff and nep-mac
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https://www.econstor.eu/bitstream/10419/103204/1/798955384.pdf (application/pdf)

Related works:
Journal Article: Total factor productivity and the propagation of shocks: Empirical evidence and implications for the business cycle (2016)
Working Paper: Total Factor Productivity and the Propagation of Shocks; Empirical Evidence and Implications for the Business Cycle (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wuewep:92

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