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

Nikolay Gospodinov, Alex Maynard and Elena Pesavento

Cahiers de recherche from Centre interuniversitaire de recherche en économie quantitative, CIREQ

Abstract: This paper 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 VAR specifications can be explained by a small, but important, low frequency co-movement between hours worked and labour productivity growth, which is allowed for in the levels specification but is implicitly set to zero in the differenced VAR. Our theoretical analysis shows that, even when the root of hours is very close to one and the low frequency co-movement is quite small, assuming away or explicitly removing the low frequency component can have large implications for the long-run identifying restrictions, giving rise to biases large enough to account for the empirical difference between the two specifications.

Keywords: Technology shocks; impulse response functions; structural VAR; long-run identification; low frequency co-movement (search for similar items in EconPapers)
JEL-codes: C32 C51 E32 E37 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2009
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Sensitivity of Impulse Responses to Small Low-Frequency Comovements: Reconciling the Evidence on the Effects of Technology Shocks (2011)
Journal Article: Sensitivity of Impulse Responses to Small Low-Frequency Comovements: Reconciling the Evidence on the Effects of Technology Shocks (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:mtl:montec:03-2009

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