THE ROLE OF TECHNOLOGY AND NONTECHNOLOGY SHOCKS IN BUSINESS CYCLES

Authors

  • Shingo Watanabe

    1. Bank of Japan, Japan, and Organisation for Economic Co-operation and Development, France
    Search for more papers by this author
    • This article is the substantially revised version of the first chapter of the author's doctoral dissertation submitted to the University of Michigan. The author is grateful to his primary advisor, Miles Kimball, for his help, advice, and encouragement. The author thanks anonymous referees, Ruediger Bachman, Susanto Basu, Richard Braun, John Fernald, Ippei Fujiwara, Masahiro Higo, Yasuo Hirose, Charles Yuji Horioka (the co-editor), Takeshi Kimura, Toshihiro Okada, Masashi Saito, Etsuro Shioji, Shigenori Shiratsuka, Tyler Shumway, Dmitriy Stolyarov, and the seminar participants at the Bank of Japan for their comments and suggestions. Jonas Fisher kindly shared his data. All remaining errors are author's. The opinions expressed in this article are author's and do not necessarily reflect those of the Bank of Japan, the OECD, or its member countries. Please address correspondence to: Shingo Watanabe, Bank of Japan, 2–1-1 Nihonbashi-Hongokucho, Chuo-ku, Tokyo 103-8660, Japan, or Economics Department, Organisation for Economic Co-operation and Development, 2, rue André-Pascal, 75775 Paris CEDEX 16, France. Phone: +33-1-45-24-99-03. E-mail: shingo.watanabe@boj.or.jp or shingo.watanabe@oecd.org.


  • Manuscript received June 22, 2009; revised December 20, 2010.

Abstract

This article proposes a method to identify technology and nontechnology shocks that permanently affect labor productivity and applies this method to data for the G7 countries. In most cases, whereas technology improvements have negative or weak effects on hours worked, positive permanent nontechnology shocks are expansionary. Permanent nontechnology shocks play an important role in business cycles, particularly in the United States and Japan, and account for 71% of a large reduction in Japan's detrended output from 1991 to 2002. Credit conditions are likely to be an important driver of variations in permanent nontechnology shocks.

Ancillary