Reaction to Technology Shocks in Markov-Switchings Structural VARs: Identification via heteroskedasticity

Aleksei Netšunajev

No ECO2012/13, Economics Working Papers from European University Institute

Abstract: The paper reconsiders the conflicting results in the debate connected to the effects of technology shocks on hours worked in the bivariate system. Given major dissatisfaction with the just-identifying long-run restrictions, I analyze whether the restrictions used in the literature are consistent with the data. Modeling volatility of shocks using Markov switching structure allows to obtain additional identifying information and perform tests of the restrictions that were just-identifying in classical structural vector autoregression analysis. Using four datasets where hours worked are modeled differently, I find that the standard restriction, identifying the technology shocks as the only sources of variation in labor productivity, has major support by the data. Taking into account important low frequency movements in the hours worked series yields a result consistent with the recent findings: hours decline in response to a positive technology shock. I also show that the use of a standard Hodrick-Prescott filter may be problematic in the context.

Keywords: Technology shocks; Markov switching model; heteroskedasticity (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ets
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http://cadmus.eui.eu/bitstream/handle/1814/21475/ECO_2012_13.pdf?sequence=1 main text

Related works:
Journal Article: Reaction to technology shocks in Markov-switching structural VARs: Identification via heteroskedasticity (2013)
Working Paper: Reaction to technology shocks in Markov-switching structural VARs: identification via heteroskedasticity (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2012/13

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