THE ROLE OF TECHNOLOGY AND NONTECHNOLOGY SHOCKS IN BUSINESS CYCLES*

This article proposes a method to identify technology and nontechnology shocks that permanently affect labor productivity and applies this method to data for the G7 countries. In most cases, whereas technology improvements have negative or weak effects on hours worked, positive permanent nontechnology shocks are expansionary. Permanent nontechnology shocks play an important role in business cycles, particularly in the United States and Japan, and account for 71% of a large reduction in Japan's detrended output from 1991 to 2002. Credit conditions are likely to be an important driver of variations in permanent nontechnology shocks.     

Employment responses to aggregate and sectoral technology shocks

This paper investigates the responses of sectoral employment in US manufacturing to a technology shock by its type: aggregate or sectoral. In order to distinguish between aggregate and sectoral shocks, we construct independent VAR models for identifying each shock separately: a factor-augmented vector autoregression (FAVAR) for aggregate shocks and a sectoral SVAR for sectoral shocks. Our aggregate model in particular extends the conventional small-scale VAR to the FAVAR framework of Bernanke et al. (2005) so that it can address the potential bias from omitted variables. The main findings are as follows: most industries exhibit negative employment responses to an aggregate technology shock while exhibiting positive responses to a sectoral technology shock. By comparing our FAVAR framework with Chang and Hong’s (2006) small-scale VAR, we show that applying the FAVAR results in significant differences in the estimated responses to an aggregate technology shock. Real rigidities (such as slow diffusion of new technology or frictional labor reallocation), rather than nominal rigidities (such as sticky prices), are crucial in accounting for the cross-industry difference in employment responses. In particular, the slow diffusion of new technology is closely related to the sluggish response of sectoral employment.     

NEUTRAL TECHNOLOGY SHOCKS AND THE DYNAMICS OF LABOR INPUT: RESULTS FROM AN AGNOSTIC IDENTIFICATION*

This article studies the dynamic response of labor input to neutral technology shocks. It uses benchmark dynamic, stochastic, general equilibrium models enriched with labor market search and matching frictions and investment‐specific technological progress that enables a new, agnostic, identification scheme based on sign restrictions on a structural vector autoregression (SVAR). The estimation supports an increase of labor input in response to neutral technology shocks. This finding is robust across different perturbations of the SVAR model.     

The effects of technological development on the labor share of national income

In this article, we analyze the effects of increasing automation in production processes on the labor share of national income. For the analyses, we use the DSGE model which contains both the physical capital and the human capital accumulation equations. We improve the model by defining productivity variables for both investment-specific technology and educational activities. In all simulations of the model except base scenario, we give more positive shock to the investment-specific technology compared to the educational activities. In each new simulation, we augment the difference between the shocks to determine the effects of increasing automation on the labor share of national income. The results show that increasing the shock difference decreases the labor share of national income, and this confirms the decline in the labor share of national income in both developed and developing countries since the 1980s.     

On the permanent effect of an aggregate demand shock: Evidence from the G-7 countries

This paper extends the work of Cover, Enders and Hueng (2006) to examine the idea that an aggregate demand shock may have permanent effect on the output level by indirectly shifting the aggregate supply curve. We utilize the bivariate SVAR modeling and adopt an identification scheme, which allows for the possibility that a shift in the aggregate demand curve may induce the long-run aggregate supply curve to shift. We have shown that aggregate supply shocks are positively affected by the demand shocks in each of the G-7 countries. It is found that a one-time positive aggregate demand shock increases the output level permanently in these industrialized economies. We have also shown that our decomposition strategy can help resolve anomalies in the responses of inflation to a positive aggregate supply shock observed in a simple Blanchard-Quah decomposition.     

Labor Market Dynamics and the Business Cycle: Structural Evidence for the United States*

We use a 12‐dimensional VAR to examine the aggregate effects of two structural technology shocks and two policy shocks. For each shock, we examine the dynamic effects on the labor market, the importance of the shock for labor market volatility, and the comovement between labor market variables and other key aggregate variables in response to the shock. We document that labor market indicators display “hump‐shaped” responses to the identified shocks. Technology shocks and monetary policy shocks are important for labor market volatility but the ranking of their importance is sensitive to the VAR specification. The conditional correlations at business cycle frequencies are similar in response to the four shocks, apart from the correlations between hours worked, labor productivity and real wages. To account for the unconditional correlations between these variables, a mixture of shocks is required.     

Technology,employment and the business cycle in post-transition countries of the EU

This article analyses the importance of technology and non-technology shocks in the business cycles of European Union post-transition countries. Different assumptions of New Keynesian and Real Business Cycle theory are tested. The results demonstrate that a non-technology shock is more important in explaining business cycles in post-transition countries, although a technology shock is not trivial. The technology shock cannot replicate basic business cycle facts observed in the data: it produces a low or negative correlation between employment and GDP, and a strong negative correlation between labour productivity and employment. Technology and non-technology GDP components are analysed in the transition and post-transition period. The results show a non-technology shock was the dominant source of business cycles both during and after the transition period.     

Real options or disaster risk? Distinguishing uncertainty effects on investment

ABSTRACT

Motivated by the fact that uncertainty shocks are a countercyclical phenomenon, this article takes a deeper look at the nature of uncertainty shocks in times of crisis and its effect on the real economy. We distinguish between volatility and disaster risk shocks and specify the consequences of these shock specifications on investment decisions. We first analyse the different impact of both shocks within a real options framework. Our theoretical results show that the effects of the two shocks are different, especially concerning disinvestment and the mid-term investment response. Second, we perform structural vector autoregression (SVAR) estimations on different country data sets. The SVAR estimations confirm our theoretical hypothesis: countries more prone to states of disaster do not show the usual real option pattern of investment to an uncertainty shock.     

Intangible capital in a real business cycle model

Recent empirical studies have shown that intangible capital plays an important role in explaining productivity gains that have occurred during the last two decades. By introducing intangible capital in an otherwise standard theoretical real business cycle model, this paper aims to provide a theoretical foundation of the empirical findings. Our results indicate that investment in intangible capital is pro-cyclical. Both transitory as well as permanent productivity shocks increase investment in intangible capital. However, in case of a permanent technology shock we learn that firms allocate more labor and physical capital to the creation of intangible capital which increases future profits at the cost of current profit. We also find that investment in intangible capital plays an important role in producing endogenous movements in productivity.     

Migration and imperfect labor markets: Theory and cross-country evidence from Denmark,Germany and the UK

We investigate the labor market effects of immigration in Denmark, Germany and the UK, three countries which are characterized by considerable differences in labor market institutions and welfare states. Institutions such as collective bargaining, minimum wages, employment protection and unemployment benefits affect the way in which wages respond to labor supply shocks, and, hence, the labor market effects of immigration. We employ a wage-setting approach which assumes that wages decline with the unemployment rate, albeit imperfectly. We find that the wage and employment effects of immigration depend on wage flexibility and the composition of the labor supply shock. In Germany immigration involves only moderate wage, but large unemployment effects, since immigrants are concentrated in labor market segments with low wage flexibility. The reverse is true for the UK and Denmark.     

A three state model of worker flows in general equilibrium

We develop a simple model featuring search frictions and a nondegenerate labor supply decision along the extensive margin. The model is a standard version of the neoclassical growth model with indivisible labor and idiosyncratic productivity shocks and frictions characterized by employment loss and employment opportunity arrival shocks. We argue that it is able to account for the key features of observed labor market flows for reasonable parameter values. Persistent idiosyncratic productivity shocks play a key role in allowing the model to match the persistence of the employment and out of the labor force states found in individual labor market histories.     

Sources of fluctuations in hours worked for Canada,Germany, Japan and the U.S.: a sign restriction VAR approach

This study empirically examines the sources of fluctuations in hours worked in Canada, Germany, Japan and the U.S. It is particularly motivated by Galí’s (1999) VAR study, which demonstrates that a positive technology shock reduces hours worked, at least in the short run. However, in the present study, a technology shock is identified without recourse to Galí’s long-run restriction, which has been subject to active controversy. Furthermore, this study uncovers other important sources of fluctuations in hours worked to reflect the concern, raised by numerous studies, that technology shocks leave most variations in hours worked unexplained. Specifically, there are six shocks underlying our model, and they are identified using a set of sign restrictions. The empirical results confirm that in all four countries, a positive technology shock significantly reduces hours worked. This technology shock, along with labor supply and demand shocks, accounts for most of the short-term variations in hours worked. As the forecasting horizon increases, technology and demand shocks become less important, whereas labor supply shocks contribute to explaining the bulk of long-run variations in hours worked. Finally, the empirical relevance of Galí’s long-run identification restriction is tested and the results are related to those obtained using the sign restriction model.     

Why have business cycle fluctuations become less volatile?

This paper shows that a standard Real Business Cycle model driven by productivity shocks can successfully account for the 50% decline in cyclical volatility of output, its components, and labor input that has occurred since 1983. The model is successful because the volatility of productivity shocks has also declined significantly over the same time period. We then investigate whether the decline in the volatility of the Solow Residual is due to changes in the volatility of some other shock operating through a channel that is absent in the standard model. We therefore develop a model with variable capacity and labor utilization. We investigate whether government spending shocks, shocks that affect the household’s first order condition for labor, and shocks that affect the household’s first order condition for saving can plausibly account for the change in TFP volatility and in the volatility of output, its components, and labor. We find that none of these shocks are able to do this. This suggests that successfully accounting for the post-1983 decline in business cycle volatility requires a change in the volatility of a productivity-like shock operating within a standard growth model. We thank Stephen Parente, Ed Prescott, John Taylor, and two anonymous referees for helpful comments and suggestions.     

技术冲击和劳动供给对经济波动的影响分析--基于可分劳动RBC模型的实证检验

文章根据国内外经济波动的不同特征,构建了用于研究中国经济波动的可分劳动RBC模型,并对改革开放以来的中国经济进行了实证检验,从供给角度考察技术冲击对中国经济波动的影响,并在RBC模型框架下分析了技术进步对中国劳动市场的影响。研究发现,一是在固定劳动和可分劳动RBC模型中,技术冲击可以解释中国经济波动的主要部分;二是可分劳动RBC模型的实证结果表明,劳动供给变动对经济波动的影响较小,技术进步对改革后的产出、居民消费和就业都产生了正向冲击效应。技术进步对就业增长效应较小,致使我国的劳动需求增长率明显小于劳动供给增长率,劳动市场供需严重不平衡,这也是导致就业波动较为平缓、失业问题日趋严峻的一个重要原因。     

货币政策对房地产市场冲击效力的动态测度

以货币政策传导渠道为理论依据,通过结构向量自回归(SVAR)模型构造货币政策对房地产市场的作用途径,可测度各种货币政策工具冲击对我国房地产市场供求的相对强度.实证分析结果表明,利率政策的冲击效力明显且持久,是调控房地产市场最有效的货币政策工具;紧缩的信贷政策仅能在短期内抑制房地产市场需求,长期效果欠佳;而货币供给量冲击对房地产市场的影响并不显著.相对于房地产需求,房地产市场供给对各种货币政策工具冲击的响应深度高,但响应速度较慢.     

SYNCHRONIZATION OF ECONOMIC SHOCKS BETWEEN GULF COOPERATION COUNCIL AND UNITED STATES,EUROPE, JAPAN,AND OIL MARKET: CHOICE OF EXCHANGE RATE REGIME†

Using a structural vector autoregression (SVAR) with block exogeneity, this study examines the impacts of external shocks originating from the United States, the European Union, Japan, and the oil market as well as those of the regional shocks, on the oil‐rich countries of the Gulf Cooperation Council (GCC), viewed as a prospective monetary union. It takes into account the implications of the shock impacts for selecting an appropriate common exchange rate arrangement. The SVAR variance decomposition and impulse response analyses strongly underscore the relative impacts of the global shocks over the regional ones. The findings imply that the world's two major currencies, the U.S. dollar and the euro, should figure highly in a GCC's common basket of currencies. Accordingly, a transitional movement to a more flexible exchange rate arrangement such as a basket peg may be desirable for these trade‐dependent economies in the long run, as is argued in the optimal currency literature for developing countries. (JEL E52, O52, C22)     

Sectoral and Aggregate Technology Shocks:Is There a Relationship?

We analyze sector-specific shocks in productivity and demand in 19 manufacturing sectors of the Austrian economy. Based on a structural vector autoregressive model (SVAR) with long-run restrictions developed by Galí (1999) we extract technology and non-technology shocks from sectoral and aggregate data. We study their patterns and relationship by means of a principal components analysis and find a close association of sectoral and macroeconomic non-technology shocks but only a very weak association for technology shocks. Impulse response analysis indicates that for almost all manufacturing sectors as well as the aggregate Austrian economy productivity growth rates experience an immediate increase due to positive technology shocks while hours worked decline. Thereby we confirm Galís results on the level of Austrian manufacturing industries. From regression analysis, we find that our shocks are closely associated to employment growth and output growth but not to investment growth and that the reaction is different for the aggregate economy and manufacturing industries.JEL codes: D24, E23, E32, O30We thank Werner Müller and the participants of the 2004 conference of the Austrian Economic Association (NOeG) for helpful comments. We would like to thank an anonymous referee for many helpful comments that led to a substantial improvement of the paper. The usual disclaimer applies. This research project was supported by a research Grant (Project Nr. 9800) of the Jubiläumsfonds der Österreichische Nationalbank (OeNB).     

A generalized Okun's Law: Uncovering the myth of China's labor market resilience

A stable labor market is a policy priority for most countries, especially after the burst of the global financial crisis. Unlike most countries, the labor market in China appears to be holding up well, despite sharp slowdown in economic growth. This paper argues that there are underlying fundamental mechanisms that help explain the resilience of China's labor market. The key to understanding labor market dynamics in China is that rural‐to‐urban migrant flows are more sensitive to growth than urban workers in the process of fast urbanization, which serves as a main shock absorber to buffer employment against adverse shocks. Therefore, we propose a generalized Okun's Law (GOL) that incorporates migrant flows with unemployment rates to capture the relation between labor market dynamics and economic cycles. The original Okun's Law can be regarded as a special case of the GOL for developed countries that have already completed urbanization. Conducting empirical analysis with both China's national‐ and city‐level data and cross‐country panel data, we find strong evidence supporting the GOL theory. Findings in the paper have implications for a deeper understanding of the wisdom of Okun's Law and its application in labor market policies.     

Labour productivity trends in Australian manufacturing: some time series properties

Labour productivity plays a significant role in economic growth, labour demand and employment situation of a particular economy. In this light, the presence of a structural break in productivity, and its unit root property, has important consequences for the overall economy and in major sectors such as manufacturing. In this article, using some recently developed unit root tests, we examine: (i) the null hypothesis of a unit root in the log-level of labour productivity for 38 manufacturing subdivisions against the alternative of trend stationarity over a three-decade period; and (ii) the presence of a structural break in the series, and whether the break has had a permanent or a transitory effect on manufacturing labour productivity. Our main finding is that shocks to labour productivity have had a transitory effect, implying that policies are likely to have only short-term effects.     

HOW IMPORTANT ARE TERMS‐OF‐TRADE SHOCKS?

According to conventional wisdom, terms‐of‐trade shocks represent a major source of business cycles in emerging and poor countries. This view is largely based on the analysis of calibrated business‐cycle models. We argue that the view that emerges from empirical structural vector autoregression (SVAR) models is strikingly different. We estimate country‐specific SVARs using data from 38 countries and find that terms‐of‐trade shocks explain less than 10% of movements in aggregate activity. We then estimate key structural parameters of a three‐sector business‐cycle model country by country and find a disconnect between the importance assigned to terms‐of‐trade shocks by theoretical and SVAR models.