Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?

Jordi Galí

No 1499, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Using data for the G7 countries, conditional correlations of employment and productivity are estimated, based on a decomposition of the two series into technology and non-technology components. The picture that emerges is hard to reconcile with the predictions of the standard real business cycle model. For a majority of countries the following results stand out: (a) technology shocks appear to induce a negative comovement between productivity and employment, counterbalanced by a positive comovement generated by demand shocks; (b) the impulse responses show a persistent decline in employment in response to a positive technology shock; and (c) measured productivity increases temporarily in response to a positive demand shock. More generally, the pattern of economic fluctuations attributed to technology shocks seems to be largely unrelated to major post-war cyclical episodes. A simple model with monopolistic competition, sticky prices and variable effort is shown to be able to account for the empirical findings.

Keywords: Business Cycles; New Keynesian Models; Real Business Cycle Models; Sticky Prices; Structural VAR (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Date: 1996-12
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations? (1999)
Working Paper: Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations? (1996)
Working Paper: Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations (1996)
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