What Does a Technology Shock Do? A VAR Analysis with Model-Based Sign Restrictions

57 Pages Posted: 28 Dec 2006

See all articles by Luca Dedola

Luca Dedola

Bank of Italy; European Central Bank (ECB)

Stefano Neri

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: December 2006


This paper estimates the effects of technology shocks in VAR models of the U.S., identified by imposing restrictions on the sign of impulse responses. These restrictions are consistent with the implications of a popular class of DSGE models, with both real and nominal frictions, and with sufficiently wide ranges for their parameters. This identification strategy thus substitutes theoretically-motivated restrictions for the atheoretical assumptions on the time-series properties of the data that are key to long-run restrictions. Stochastic technology improvements persistently increase real wages, consumption, investment and output in the data; hours worked are very likely to increase, displaying a hump-shaped pattern. Contrary to most of the related VAR evidence, results are not sensitive to a number of specification assumptions, including those on the stationarity properties of variables.

Keywords: Technology shocks, DSGE models, Bayesian VAR methods, Identification

JEL Classification: C3, E3

Suggested Citation

Dedola, Luca and Neri, Stefano, What Does a Technology Shock Do? A VAR Analysis with Model-Based Sign Restrictions (December 2006). ECB Working Paper No. 705, Bank of Italy Economic Research Paper No. 607, Available at SSRN: https://ssrn.com/abstract=949851

Luca Dedola (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Stefano Neri

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
+39 06 4792 2821 (Phone)

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