Is the technology-driven real business cycle hypothesis dead? Shocks and aggregate fluctuations revisited

This paper re-examines recent empirical evidence that positive technology shocks lead to short-run declines in hours. Building on Galí's [1999. Technology, employment, and the business cycle: do technology shocks explain aggregate fluctuations. American Economic Review 89, 249–271] work, which...

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Bibliographic Details
Published in:Journal of monetary economics 2005-11, Vol.52 (8), p.1379-1399
Main Authors: Francis, Neville, Ramey, Valerie A.
Format: Article
Language:English
Subjects:
Aggregate analysis
Business cycles
Dynamic models
Economic fluctuations
Economic models
Economic shock
General economic equilibrium
Information technology
Long-run restrictions
Macroeconomics
Model testing
Monetary economics
Studies
Technological change
Technology shocks
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Summary:This paper re-examines recent empirical evidence that positive technology shocks lead to short-run declines in hours. Building on Galí's [1999. Technology, employment, and the business cycle: do technology shocks explain aggregate fluctuations. American Economic Review 89, 249–271] work, which uses long-run restrictions to identify technology shocks, we analyze whether the identified shocks can be plausibly interpreted as technology shocks. We first examine the validity of the identification assumption in a DGE model with several possible sources of permanent shocks. We then empirically assess the plausibility of the shocks using a variety of tests. After finding that the shocks pass all of the tests, we present two examples of modified DGE models that match the facts.
ISSN:0304-3932
1873-1295
DOI:10.1016/j.jmoneco.2004.08.009