Discussion paper

DP7474 Methods versus Substance: Measuring the Effects of Technology Shocks on Hours

In this paper, we employ both calibration and modern (Bayesian) estimation methods to assess the role of neutral and investment-specific technology shocks in generating fluctuations in hours. Using a neoclassical stochastic growth model, we show how answers are shaped by the identification strategies and not by the statistical approaches. The crucial parameter is the labor supply elasticity. Both a calibration procedure that uses modern assessments of the Frisch elasticity and the estimation procedures result in technology shocks accounting for 2% to 9% of the variation in hours worked in the data. We infer that we should be talking more about identification and less about the choice of particular quantitative approaches.

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Citation

Schorfheide, F, C Fuentes-Albero, M Kryshko and R Santaeulàlia-Llopis (2009), ‘DP7474 Methods versus Substance: Measuring the Effects of Technology Shocks on Hours‘, CEPR Discussion Paper No. 7474. CEPR Press, Paris & London. https://cepr.org/publications/dp7474