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TFP and the Transmission of Shocks

Sebastian Rüth, Eric Mayer () and Johann Scharler

Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: We show that TFP reacts counter-cyclically to macroeconomic shocks, which we identify by imposing sign restrictions. Counterfactual simulations, based on a New Keynesian DSGE model, show that firms manage to employ labor more efficiently during downturns, which leads to a muted drop in the output gap as long as the recession is not deep enough to make the zero lower bound on the nominal interest rate binding. If the economy hits the zero lower bound, the reductions in both, employment and output gap, are stronger when we allow TFP to depend on the state of the business cycle.

JEL-codes: E32 E40 E50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2014
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