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Sensitivity of Impulse Responses to Small Low-Frequency Comovements: Reconciling the Evidence on the Effects of Technology Shocks

Title:

Sensitivity of Impulse Responses to Small Low-Frequency Comovements: Reconciling the Evidence on the Effects of Technology Shocks

Gospodinov, Nikolay and Maynard, Alex and Pesavento, Elena (2011) Sensitivity of Impulse Responses to Small Low-Frequency Comovements: Reconciling the Evidence on the Effects of Technology Shocks. Journal of Business and Economic Statistics, 29 (4). pp. 455-467. ISSN 0735-0015

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Official URL: http://dx.doi.org/10.1198/jbes.2011.10042

Abstract

This article clarifies the empirical source of the debate on the effect of technology shocks on hours worked. We find that the contrasting conclusions from levels and differenced vector autoregression specifications, documented in the literature, can be explained by a small low-frequency comovement between hours worked and productivity growth that gives rise to a discontinuity in the solution for the structural coefficients identified by long-run restrictions. Whereas the low-frequency comovement is allowed for in the levels specification, it is implicitly set to 0 in the differenced vector autoregression. Consequently, even when the root of hours is very close to 1 and the low-frequency comovement is quite small, removing it can give rise to biases of sufficient size to account for the empirical difference between the two specifications.

Divisions:Concordia University > Faculty of Arts and Science > Economics
Item Type:Article
Refereed:Yes
Authors:Gospodinov, Nikolay and Maynard, Alex and Pesavento, Elena
Journal or Publication:Journal of Business and Economic Statistics
Date:2011
ID Code:973671
Deposited By:ANDREA MURRAY
Deposited On:18 Mar 2012 13:09
Last Modified:18 Mar 2012 13:09
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