Neutral Technology Shocks and Employment Dynamics: Results Based on an RBC Identification Scheme

43 Pages Posted: 21 May 2012

See all articles by Haroon Mumtaz

Haroon Mumtaz

University of London - School of Sciences

Francesco Zanetti

Bank of England

Date Written: May 18, 2012

Abstract

This paper studies the dynamic response of labour input to neutral technology shocks. It uses a standard real business cycle model enriched with labour market search and matching frictions and investment-specific technological progress that enables a new, agnostic, identification scheme based on sign restrictions on an SVAR. The estimation supports an increase of labour input in response to neutral technology shocks. This finding is robust across different perturbations of the SVAR model. The model is extended to allow for time-varying volatility of shocks and the identification scheme is used to investigate the importance of neutral and investment-specific technology shocks to explain the reduced volatility of U.S. macroeconomic variables over the past two decades. Neutral technology shocks are found to be more important than investment-specific technology shocks.

Suggested Citation

Mumtaz, Haroon and Zanetti, Francesco, Neutral Technology Shocks and Employment Dynamics: Results Based on an RBC Identification Scheme (May 18, 2012). Bank of England Working Paper No. 453. Available at SSRN: https://ssrn.com/abstract=2063199 or http://dx.doi.org/10.2139/ssrn.2063199

Haroon Mumtaz

University of London - School of Sciences ( email )

London, WC1E 7HX
United Kingdom

Francesco Zanetti (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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