Contractionary Effects of Supply Shocks: Evidence and Theoretical Interpretation

Francesco Giuli and Massimiliano Tancioni ()

No 131, Working Papers in Public Economics from Department of Economics and Law, Sapienza University of Roma

Abstract: The debate on the response of hours worked after productivity improvements is still an open issue in the theoretical and empirical literature. In this work we show that, once conditional correlations are taken into account, both hours and investment decline temporarily following a positive technology shock. We fi rst provide evidence about this apparent puzzle employing weakly identi ed SVECs. We then set-up and estimate a sticky price/wage DSGE model in which the presence of strategic complementarities in pricesetting lowers the slope of the New Keynesian Phillips curve, and show that the posterior impulse responses are consistent with the SVEC-based evidence.

Keywords: technology shocks; investment dynamics; vector error correction model; Bayesian inference. (search for similar items in EconPapers)
JEL-codes: C11 E22 E32 (search for similar items in EconPapers)
Pages: 44
Date: 2010-03
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Citations: View citations in EconPapers (5)

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