Identification of Technology Shocks in Structural Vars

Authors

  • Patrick Fève,

    1. Toulouse School of Economics
      University of Toulouse, GREMAQ, IDEI, IUF and Banque de France
      Université du Québec à Montréal, CIRPÉE and CIREQ
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  • Alain Guay

    1. Toulouse School of Economics
      University of Toulouse, GREMAQ, IDEI, IUF and Banque de France
      Université du Québec à Montréal, CIRPÉE and CIREQ
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  •  We thank the Editor, A. Scott, and two anonymous referees for helpful comments. We also thank J. Campbell, F. Collard, M. Dupaigne, J. Galí, L. Gambetti, S. Grégoir, A. Kurman, J. Matheron, F. Pelgrin, L. Phaneuf, F. Portier, H. Uhlig and E. Wasmer for fruitful discussions. A first version of this article was written when the second author was visiting the University of Toulouse. This article has benefited from helpful remarks and discussions during presentations at CIRANO Workshop on Structural VARs, UQAM seminar, Macroeconomic Workshop (Aix/Marseille), Laser Seminar (Montpellier), HEC-Lausanne seminar, HEC-Montréal seminar, Université Laval seminar, AMeN workshop (Barcelona) and T2M annual conference (Paris). The traditional disclaimer applies. The views expressed herein are those of the authors and not necessary those of the Banque de France.

Abstract

The usefulness of SVARs for developing empirically plausible models is actually subject to controversies in macroeconomics. We propose a two-step SVARs-based procedure which consistently estimates the effect of permanent technology shocks on aggregate variables. Simulation experiments from a standard business cycle model and a sticky prices model show that our approach outperforms standard SVARs. The two-step procedure, when applied to actual data, predicts a significant short-run decrease of hours after a technology improvement followed by a hump-shaped positive response. Additionally, the rate of inflation and the nominal interest rate displays a significant decrease after this shock.

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