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Factor Demand Linkages, Technology Shocks and the Business CycleSean HollyUniversity of Cambridge - Department of Applied Economics Ivan PetrellaUniversity of London - School of Business, Economics and Informatics October 1, 2010 Center for Economic Studies, KU Leuven - Discussion Paper No. 10.26 Abstract: This paper argues that factor demand linkages can be important for the transmission of both sectoral and aggregate shocks. We show this using a panel of highly disaggregated manufacturing sectors together with sectoral structural VARs. When sectoral interactions are explicitly accounted for, a contemporaneous technology shock to all manufacturing sectors implies a positive response in both output and hours at the aggregate level. Otherwise there is a negative correlation, as in much of the existing literature. Furthermore, we find that technology shocks are important drivers of the business cycle.
Number of Pages in PDF File: 43 Keywords: Technology Shocks, Multisectors, Business Cycle, Long-run Restrictions, Cross Sectional Dependence. JEL Classification: E20, E24, E32, C31 working papers seriesDate posted: October 11, 2010Suggested CitationContact Information
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