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Duke Economics Working Paper #03-23

Do Technology Shocks Drive Hours Up or Down? A Little Evidence From an Agnostic Procedure


Elena Pesavento and Barbara Rossi

Abstract

This paper analyzes the robustness of the estimate of a positive productivity shock on hours to the presence of a possible unit root in hours. Estimations in levels or in first differences provide opposite conclusions. We rely on an agnostic procedure in which the researcher does not have to choose between a specification in levels or in first differences. We find that a positive productivity shock has a negative effect on hours, as in Francis and Ramey (2001), but the effect is much more short-lived, and disappears after two quarters. The effect becomes positive at business cycle frequencies, as in Christiano et al. (2003).

Keywords: Technology shocks, persistence, impulse response functions, Real Business Cycle Theory

JEL: C32, C12, F40

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