The Review of Economics and Statistics Vol. 96 No. 4 2014
A Flexible Finite-Horizon Alternative to Long-Run Restrictions with an Application to Technology Shocks
Abstract
Recent studies using long-run restrictions question the validity of the technology-driven real business cycle hypothesis. We propose an alternative identification that maximizes the contribution of technology shocks to the forecast-error variance of labor productivity at a long but finite horizon. In small-sample Monte Carlo experiments, our identification outperforms standard long-run restrictions by significantly reducing the bias in the short-run impulse responses and raising their estimation precision. Unlike its long-run restriction counterpart, when our Max Share identification technique is applied to U.S. data, it delivers the robust result that hours worked responds negatively to positive technology shocks.
- DOI
- 10.1162/rest_a_00406
- Volume
- 96
- Issue
- 4
- Pages
- 638-647
- Language
- en
- Sources
- openalex crossref