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Factor Demand Linkages, Technology Shocks and the Business Cycle

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  • Holly, Sean
  • Petrella, Ivan

Abstract

This paper argues that factor demand linkages are crucial in 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 business cycles.

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  • Holly, Sean & Petrella, Ivan, 2009. "Factor Demand Linkages, Technology Shocks and the Business Cycle," MPRA Paper 18120, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:18120
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    More about this item

    Keywords

    Multisectors; Technology shocks; Business cycles; Long-run restrictions; Cross Sectional Dependence.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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