What Does a Technology Shock Do? A VAR Analysis with Model-Based Sign Restrictions
Bank of Italy; European Central Bank (ECB)
Bank of Italy
ECB Working Paper No. 705
Bank of Italy Economic Research Paper No. 607
This paper estimates the effects of technology shocks in VAR models of the U.S., identified by imposing restrictions on the sign of impulse responses. These restrictions are consistent with the implications of a popular class of DSGE models, with both real and nominal frictions, and with sufficiently wide ranges for their parameters. This identification strategy thus substitutes theoretically-motivated restrictions for the atheoretical assumptions on the time-series properties of the data that are key to long-run restrictions. Stochastic technology improvements persistently increase real wages, consumption, investment and output in the data; hours worked are very likely to increase, displaying a hump-shaped pattern. Contrary to most of the related VAR evidence, results are not sensitive to a number of specification assumptions, including those on the stationarity properties of variables.
Number of Pages in PDF File: 57
Keywords: Technology shocks, DSGE models, Bayesian VAR methods, Identification
JEL Classification: C3, E3working papers series
Date posted: December 28, 2006
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