The Review of Economics and Statistics Vol. 94 No. 4 2012

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

Abstract

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

Issue

4

Pages

948-963

Language

en

Sources

openalex crossref

Cite

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