Abstract

http://ssrn.com/abstract=1162927
 
 

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A Flexible Finite-Horizon Alternative to Long-Run Restrictions with an Application to Technology Shocks


Neville Francis


University of North Carolina (UNC) at Chapel Hill - Department of Economics

Michael Owyang


Federal Reserve Bank of St. Louis - Research Division

Jennifer E. Roush


Federal Reserve Board - Division of Monetary Affairs

Riccardo DiCecio


Federal Reserve Bank of St. Louis - Research Division

December 24, 2010

Federal Reserve Bank of St. Louis Working Paper No. 2005-024G

Abstract:     
Recent studies using long-run restrictions question the validity of the technology-driven real business cycle hypothesis. We propose an alternative identification that maximizes the contribution of technology shocks to the forecast-error variance of labor productivity at a long, but finite, horizon. In small-sample Monte Carlo experiments, our identification outperforms standard long-run restrictions by significantly reducing the bias in the short-run impulse responses and raising their estimation precision. Unlike its long-run restriction counterpart, when our Max Share identification technique is applied to U.S. data it delivers the robust result that hours worked responds negatively to positive technology shocks.

Number of Pages in PDF File: 27

Keywords: productivity, structural VAR, long-run restrictions

JEL Classification: C32, C50, E32

working papers series


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Date posted: July 19, 2008 ; Last revised: July 11, 2012

Suggested Citation

Francis, Neville and Owyang, Michael and Roush, Jennifer E. and DiCecio, Riccardo, A Flexible Finite-Horizon Alternative to Long-Run Restrictions with an Application to Technology Shocks (December 24, 2010). Federal Reserve Bank of St. Louis Working Paper No. 2005-024G. Available at SSRN: http://ssrn.com/abstract=1162927 or http://dx.doi.org/10.2139/ssrn.1162927

Contact Information

Neville Francis
University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )
Chapel Hill, NC 27599
United States
Michael Owyang (Contact Author)
Federal Reserve Bank of St. Louis - Research Division ( email )
411 Locust St
Saint Louis, MO 63011
United States
Jennifer E. Roush
Federal Reserve Board - Division of Monetary Affairs ( email )
20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2897 (Phone)
202-263-4850 (Fax)
Riccardo DiCecio
Federal Reserve Bank of St. Louis - Research Division ( email )
411 Locust St
Saint Louis, MO 63011
United States
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