Contractionary Effects of Supply Shocks: Evidence and Theoretical Interpretation

37 Pages Posted: 6 Aug 2009

See all articles by Francesco Giuli

Francesco Giuli

University of Rome III - Department of Economics

Massimiliano Tancioni

Sapienza University of Rome, Department of Public Economics

Date Written: August 6, 2009

Abstract

The theoretical literature on business cycles predicts positive factor inputs responses to productivity shocks. In this work we argue that, once conditional correlations are taken into account, hours worked and investment decline temporarily following a positive technology shock. First, we provide evidence about this apparent puzzle employing weakly identified SVECMs. Second, we estimate a sticky price/wage DSGE model with firm-specific capital and we show that the Bayesian impulse responses are consistent with the SVECMs evidence.

Keywords: technology shocks, investment dynamics, vector error correction model, firm specific capital, Bayesian inference.

JEL Classification: E32, E22, C11

Suggested Citation

Giuli, Francesco and Tancioni, Massimiliano, Contractionary Effects of Supply Shocks: Evidence and Theoretical Interpretation (August 6, 2009). Available at SSRN: https://ssrn.com/abstract=1444889 or http://dx.doi.org/10.2139/ssrn.1444889

Francesco Giuli

University of Rome III - Department of Economics ( email )

via Ostiense, 139
Rome, 00154
Italy

Massimiliano Tancioni (Contact Author)

Sapienza University of Rome, Department of Public Economics ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

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