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Technology and Non-Technology Shocks: Measurement and Implications for International Comovement

Andrei Levchenko and Nitya Pandalai Nayar
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Nitya Pandalai Nayar: University of Texas, Austin

No 449, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: This paper examines the role of both technology and non-technology shocks in international business cycle comovement. Using industry-level data on 30 countries and up to 28 years, we first provide estimates of utilization-adjusted TFP shocks, and an approach to infer non-technology shocks. We then set up a quantitative model calibrated to the observed international input-output and final goods trade, and use it to assess the contribution of both technology and non-technology shocks to international comovement. We show that unlike the traditional Solow residual, the utilization-adjusted TFP shocks are virtually uncorrelated across countries. Transmission of TFP shocks across countries also cannot generate noticeable comovement in GDP in our sample of countries. By contrast, non-technology shocks are highly correlated across countries, and the model simulation with only non-technology shocks generates substantial GDP correlations. We conclude that in order to understand international comovement, it is essential to both model and measure non-TFP shocks.

New Economics Papers: this item is included in nep-dge and nep-pay
Date: 2018
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