6/2012 Aleksei Netšunajev. Reaction to technology shocks in Markov-switching structural VARs: Identification via heteroskedasticity

Working Papers of Eesti Pank No. 6/2012

The paper reconsiders the conflicting results in the debate connected to the effects of technology shocks on hours worked. Given the major dissatisfaction with the just-identifying long-run restrictions, I analyze whether the restrictions used in the literature are consistent with the data. Modeling volatility of shocks using Markov switching structure allows to obtain additional identifying information and perform tests of the restrictions that were just-identifying in classical structural vector autoregressive analysis. Using six ways of identifying technology shocks, I find that not all of them are supported by the data. There is no clear-cut evidence in favor of a positive reaction of hours to technology shocks.

JEL Code: C32
 
Keywords: technology shocks, Markov switching model, heteroskedasticity
 
Author’s e-mail address: aleksei.netsunajev [at] eui.eu
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The views expressed are those of the author and do not necessarily represent the official views of Eesti Pank.