The Effects of Permanent Technology Shocks on Labor Productivity and Hours in the RBC model

Arbeitspapier

Recent work on the effects of permanent technology shocks argue that the basic RBC model cannot account for a negative correlation between hours worked and labor productivity. In this paper, I show that this conjecture is not necessarily correct. In the basic RBC model, I find that hours worked fall and labor productivity rises after a positive permanent technology shock once one allows for the possibility that the process for the permanent technology shock is slightly persistent in growth rates. A more serious limitation of the RBC model is its inability to generate a persistent rise in hours worked after a positive permanent technology shock along with a rise in labor productivity that are in line with what the data suggests. These results call for a reconsideration of the real and nominal frictions and policy response that need to be introduced in the basic RBC model in order to improve the model’s ability to match the data.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Sveriges Riksbank Working Paper Series ; No. 161

Classification and Topics

• Classification: Wirtschaft ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Business Fluctuations; Cycles
• Subject: permanent technology shocks ; hours worked per capita ; labor productivity ; real business cycle model ; vector autoregressions

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lindé, Jesper
• Event: Veröffentlichung
• (who): Sveriges Riksbank
• (where): Stockholm
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/82490
• Last update: 10.03.2025, 11:43 AM CET