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Technology Shocks and UK Business Cycles

Hashmat Khan () and John Tsoukalas ()

Macroeconomics from EconWPA

Abstract: After a neutral technology shock, hours worked decline in a persistent manner in the UK. This response is robust to a variety of considerations in the recent literature: measures of labour input, level versus differenced hours in the VAR, small and large VARS, long- versus medium- run identification, and neutral versus investment-specific technology shocks. The UK economy, therefore, offers a unique perspective on the response of hours to technology shocks. The large negative correlation between labour productivity and hours is the source of this response. Models with nominal price stickiness, low substitutability between domestic and foreign consumption, and investment-specific shocks appear to be most plausible in interpreting the short-run effects of technology shocks. Quantitatively, however, technology shocks account for under 20% of the business cycle variation in hours and under 30% of business cycle variation in output. These findings suggest that technology shocks may play only a limited role in driving UK business cycles.

Keywords: Techology shocks; business cycles (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mac
Date: 2005-12-12
Note: Type of Document - pdf; pages: 54
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