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THE HOURS WORKED–PRODUCTIVITY PUZZLE: IDENTIFICATION IN A FRACTIONAL INTEGRATION SETTING

Published online by Cambridge University Press:  04 April 2014

Yuliya Lovcha and
Alejandro Perez-Laborda
Yuliya Lovcha*
Affiliation:
Universidad de Navarra
Alejandro Perez-Laborda
Affiliation:
Universitat Rovira-i-Virgili and CREIP
*
Address correspondence to: Yuliya Lovcha, Departamento de Economia, Universidad de Navarra, 31080 Pamplona, Spain; e-mail: yuliya.lovcha@gmail.com.
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Abstract

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A recent finding of the SVAR literature is that the response of hours worked to a (positive) technology shock depends on the assumed order of integration of the hours. In this work we relax this assumption, allowing fractional integration in hours and productivity. We find that the sign and magnitude of the estimated responses depend crucially on the identification assumptions employed. Although the responses of hours recovered with short-run (SR) restrictions are positive in all data sets, long-run (LR) identification results in negative, although sometimes not significant responses. We check the validity of these assumptions with the Sims procedure, concluding that both LR and SR are appropriate to recover responses in a fractionally integrated VAR. However, the application of the LR scheme always results in an increase in sampling uncertainty. Results also show that even the negative responses found in the data could still be compatible with real business cycle models.

Keywords

VARFIMATechnology ShockLong MemoryStructural VAR

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 19 , Issue 7 , October 2015, pp. 1593 - 1621
Copyright
Copyright © Cambridge University Press 2014 

References

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