Technology Shocks, Non-stationary Hours and DSVAR

Martial Dupaigne, Patrick Fève and Julien Matheron

Review of Economic Dynamics, 2007, vol. 10, issue 2, 238-255

Abstract: Structural Vector Autoregressions with a differenced specification of hours (DSVAR) suggest that productivity shocks identified using long--run restrictions lead to a persistent and significant decline in hours worked. This evidence calls into question standard business cycle models in which a positive technology shock leads to a rise in hours. In this paper we argue that such a conclusion is unwarranted because model's data and actual data are not treated symmetrically. To illustrate this problem, we estimate and test a flexible-price DSGE model with non-stationary hours using Indirect Inference on impulse responses of hours and output after technology and non-technology shocks. We find that, once augmented with a moderate amount of real frictions, the model can mimic well impulse responses obtained form a DSVAR on actual data. Using this model as a data generating process, we show that our estimation method is less subject to bias than a method that would directly compare theoretical responses with responses from the DSVAR. (Copyright: Elsevier)

Keywords: DSVARs; Long-run restrictions; DSGE models; Non-stationary hours; Indirect Inference (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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DOI: 10.1016/j.red.2006.12.005

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