Are Cyclical Fluctuations in Productivity Due More to Supply Shocks or Demand Shocks?

Matthew Shapiro

No 822, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Measured productivity is strongly procyclical. Real business cycle theories suggest that actual fluctuations in productivity are the source of fluctuations in aggregate output. Keynesian theories maintain that fluctuations in aggregate output come from shocks to aggregate demand. Keynesian theories appeal to labor hoarding or off the production function behavior to explain the procyclicality of productivity. If observed productivity shocks are true productivity shocks, a function of factor prices should covary exactly with productivity. In annual data for United States industries, that function of factor prices and conventionally-measured productivity move together very closely. Moreover, their difference is uncorrelated with aggregate output.

Keywords: Business cycles; macroeconomic fluctuations; productivity; aggregate demand; factor prices (search for similar items in EconPapers)
Pages: 19 pages
Date: 1987-02
Note: CFP 677.
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Citations: View citations in EconPapers (27)

Published in AEA Papers and Proceedings (May 1987), 77(2): 118-124

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Related works:
Journal Article: Are Cyclical Fluctuations in Productivity Due More to Supply Shocks or Demand Shocks? (1987)
Working Paper: Are Cyclical Fluctuations in Productivity Due More to Supply Shocks or Demand Shocks? (1987)
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