This paper investigates the source of historical fluctuations in annual US data extending back to the late 19th century. Long-run identifying restrictions are used to decompose productivity, hours, and output into technology shocks and non-technology shocks. A variety of models with differing auxiliary assumptions are investigated. The preferred model suggests that the Great Depression was a period in which both types of shocks were very negative. On the other hand, our estimates support the microeconomic evidence of historically large positive technology shocks from 1934 to 1936. Finally, both types of shocks are responsible for the reduction in the variance of output in the post-WWII period.
*Published: This paper was subsequently published as The Source of Historical Economic Fluctuations: An Analysis using Long-Run Restrictions, Neville Francis, Valerie A. Ramey, in NBER book NBER International Seminar on Macroeconomics 2004 (2006)
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