Anticipated Technology Shocks: A Re-Evaluation Using Cointegrated Technologies
Joel Wagner ()
Staff Working Papers from Bank of Canada
Two approaches have been taken in the literature to evaluate the relative importance of news shocks as a source of business cycle volatility. The first is an empirical approach that performs a structural vector autoregression to assess the relative importance of news shocks, while the second is a structural-model-based approach. The first approach suggests that anticipated technology shocks are an important source of business cycle volatility; the second finds anticipated technology shocks are incapable of generating any business cycle volatility. This paper challenges the latter conclusion by presenting a structural news shock model adapted to reproduce the cointegrating relationship between total factor productivity and the relative price of investment. With cointegrated neutral and investment-specific technology, anticipated shocks to the common stochastic trend explain approximately 22%, 32%, 34% and 20% of the variance of output, investment, hours and consumption in the United States, respectively, reconciling the discrepancy between theory and data.
Keywords: Business fluctuations and cycles; Productivity (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Pages: 37 pages
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:17-11
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