Output Measurement and Technological Shocks in Business Cycles

19 Pages Posted: 20 Oct 2022

See all articles by Irina Panovska

Irina Panovska

University of Texas at Dallas

Edouard Wemy

Clark University

Date Written: October 18, 2022


Is the importance of technology shocks in accounting for the fluctuations in output and hours sensitive to the measure of output? We investigate the contribution of technological shocks to economic fluctuations when output is defined in consumption units, as commonly used in many macroeconomic models, and when output is tabulated according to the Divisia index in the U.S. National Income and Product Accounts (NIPAs). Based on a standard neoclassical growth framework that allows for a mapping of theory into any desired measure of output, we establish that the same restrictions may be used to identify technology shocks in a vector autoregression model regardless of the measure of output. However, our estimation reveals that while the combination of both investment-specific technology shocks and neutral technology shocks accounts for a large portion of the business cycle variability of hours and output, the choice of the measure of output via the use of the associated deflator greatly affects the amplification of the shocks in the responses and the variability of the responses in output and hours.

Keywords: Business Cycles, Investment-Specific technological change, Vector Autoregression

JEL Classification: C51, E22, E32

Suggested Citation

Panovska, Irina and Wemy, Edouard, Output Measurement and Technological Shocks in Business Cycles (October 18, 2022). Available at SSRN: https://ssrn.com/abstract=4251728 or http://dx.doi.org/10.2139/ssrn.4251728

Irina Panovska (Contact Author)

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Edouard Wemy

Clark University ( email )

950 Main Street
Worcester, MA 01610
United States

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