Methods versus substance: measuring the effects of technology shocks on hours

Fuentes-Albero, Cristina; Kryshko, Maxym; Ríos-Rull, José-Víctor; Santaeulalia-Llopis, Raul; Schorfheide, Frank

Report

Methods versus substance: measuring the effects of technology shocks on hours

Abstract: 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.

Keywords: Business cycles; Technology - Economic aspects;