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The Effects of a Technology Shock in the Euro Area

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  • Nuno Alves
  • Sandra Gomes
  • José Brandão de Brito

Abstract

The aim of this paper is to estimate the effects of a technology shock in the euro area within a structural VAR framework. Since the impact of these shocks on labor use is a controversial issue in the related literature, we give particular attention to it. Given that the estimated effects of a technology shock are quite sensible to the low-frequency properties of the labor input measure, we resort to an extensive statistical analysis to investigate whether hours worked are better characterized as stationary or difference stationary. We conduct a battery of classical unit root and stationary tests, analyze the small-sample properties of some of the tests-statistics, explore encompassing tests and Bayesian odds ratios to ascertain if the more appropriate VAR model is the one in which hours per capita enter in levels or first-differences. The evidence gathered is in support of hours being stationary, which leads to the conclusion that per capita hours worked rise after a technology shock in the euro area. As for the responses of the remaining variables, our results are in line with the bulk of the literature.

Suggested Citation

  • Nuno Alves & Sandra Gomes & José Brandão de Brito, 2006. "The Effects of a Technology Shock in the Euro Area," Working Papers w200601, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w200601
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