Do Technology Shocks Drive Hours Up or Down?

Barbara Rossi and Elena Pesavento

No 96, Econometric Society 2004 North American Summer Meetings from Econometric Society

Abstract: This paper analyzes the robustness of the estimate of a positive productivity shock on hours to the presence of a possible unit root in hours. Estimations in levels or in first differences provide opposite conclusions. We rely on an agnostic procedure in which the researcher does not have to choose between a specification in levels or in first differences. The method uses alternative approximations based on local-to-unity asymptotic theory and allows the lead-time of the impulse response function to be a fixed fraction of the sample size. These devices provide better approximations in small samples and give confidence bands that have better coverage properties at medium and long horizons than existing methods. We find that a positive productivity shock has a negative effect on hours, as in Francis and Ramey (2001), but the effect is much more short-lived, and disappears after two quarters. The effect becomes positive at business cycle frequencies, as in Christiano et al. (2003)

Keywords: Technology shocks; persistence; impulse response functions; Real Business Cycle. (search for similar items in EconPapers)
JEL-codes: C12 C32 E32 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (5)

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