NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Is the Technology-Driven Real Business Cycle Hypothesis Dead?

Neville Francis, Valerie A. Ramey

NBER Working Paper No. 8726
Issued in January 2002
NBER Program(s):   EFG

In this paper, we re-examine the recent evidence that technology shocks do not produce business cycle patterns in the data. We first extend GalĀ”'s (1999) work, which uses long-run restrictions to identify technology shocks, by examining whether the identified shocks can be plausibly interpreted as technology shocks. We do this in three ways. First, we derive additional long-run restrictions and use them as tests of overidentification. Second, we compare the qualitative implications from the model with the impulse responses of variables such as wages and consumption. Third, we test whether some standard 'exogenous' variables predict the shock variables. We find that oil shocks, military build-ups, and Romer dates do not predict the shock labeled 'technology.' We then show ways in which a standard DGE model can be modified to fit GalĀ”'s finding that a positive technology shock leads to lower labor input. Finally, we re-examine the properties of the other key shock to the system.

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Document Object Identifier (DOI): 10.3386/w8726

Published: Francis, Neville and Valerie A. Ramey. "Is The Technology-Driven Real Business Cycle Hypothesis Dead? Shocks And Aggregate Fluctuations Revisited," Journal of Monetary Economics, 2005, v52(8,Nov), 1379-1399.

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