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American Economic Review: Vol. 89 No. 1 (March 1999)

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Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?

Article Citation

Gali, Jordi. 1999. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?" American Economic Review, 89(1): 249-271.

DOI: 10.1257/aer.89.1.249

Abstract

The author estimate a decomposition of productivity and hours into technology and nontechnology components. Two results stand out: (1) the estimated conditional correlations of hours and productivity are negative for technology shocks, positive for nontechnology shocks; and (2) hours show a persistent decline in response to a positive technology shock. Most of the results hold for a variety of model specifications and for the majority of G7 countries. The picture that emerges is hard to reconcile with a conventional real-business-cycle interpretation of business cycles but is shown to be consistent with a simple model with monopolistic competition and sticky prices.

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Authors

Gali, Jordi (NYU)

JEL Classifications

E32: Business Fluctuations; Cycles
O33: Technological Change: Choices and Consequences; Diffusion Processes


American Economic Review


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