Factor Demand Linkages, Technology Shocks, and the Business Cycle

Sean Holly; Iván Petrella

doi:10.1162/rest_a_00253

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Factor Demand Linkages, Technology Shocks, and the Business Cycle

Sean Holly^1,2; Iván Petrella³

¹ University of Cambridge · ² Centre for Economic Policy Research · ³ Birkbeck, University of London

The Review of Economics and Statistics 2012 open access

This paper argues that factor demand linkages can be important for the transmission of both sectoral and aggregate shocks. We show this using a panel of highly disaggregated manufacturing sectors together with sectoral structural VARs. When sectoral interactions are explicitly accounted for, a contemporaneous technology shock to all manufacturing sectors implies a positive response in both output and hours at the aggregate level. Otherwise there is a negative correlation, as in much of the existing literature. Furthermore, we find that technology shocks are important drivers of the business cycle.

DOI: 10.1162/rest_a_00253
Volume: 94 (4)
Pages: 948-963
Language: en
Export: BibTeX
Sources: openalex crossref