What Does a Technology Shock Do? A VAR Analysis with Model-Based Sign Restrictions

63 Pages Posted: 30 Sep 2004

See all articles by Luca Dedola

Luca Dedola

Bank of Italy; European Central Bank (ECB)

Stefano Neri

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: September 2004


This Paper estimates the effects of technology shocks in VAR models of the United States, Japan and Germany, identified imposing restrictions on the sign of impulse responses. These restrictions are motivated with priors on the parameters of a class of DSGE models with both real and nominal frictions. Estimated technology shocks lead to substantial and persistent increases in labor productivity, real wages, consumption, investment and output. In contrast with most results in the VAR literature, hours worked are much more likely to increase, displaying a hump-shaped pattern. These results are shown to stem primarily from the identification strategy proposed in the Paper, which substitutes theoretical restrictions for the atheoretical assumptions on the time series properties of the data, that are the hallmark of long-run restrictions.

Keywords: Technology shocks, DSGE models, Bayesian VAR methods, impulse responses

JEL Classification: C30, E30

Suggested Citation

Dedola, Luca and Neri, Stefano, What Does a Technology Shock Do? A VAR Analysis with Model-Based Sign Restrictions (September 2004). CEPR Discussion Paper No. 4537, Available at SSRN: https://ssrn.com/abstract=598161

Luca Dedola (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Stefano Neri

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
+39 06 4792 2821 (Phone)

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