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Faculty of Economics

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Holly, S. and Petrella, I.

Factor Demand Linkages, Technology Shocks and the Business Cycle

CWPE1001

Abstract: This paper argues that factor demand linkages are crucial in the transmission of both sectoral and aggregate shocks. We show this using a panel of highly disaggregated manufacturing sectors together with sectoral structural VARs. When sectoral interactions are explicitly accounted for, a contemporaneous technology shock to all manufacturing sectors implies a positive response in both output and hours at the aggregate level. Otherwise, there is a negative correlation as in much of the existing literature. Furthermore, we find that technology shocks are important drivers of business cycles.

Keywords: Multisectors, Technology shocks, Business cycles, Long-run restrictions, Cross Sectional Dependence

JEL Codes: E20 E32 C31 C51

Author links: Sean Holly  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1001.pdf

Open Access Link: https://doi.org/10.17863/CAM.1139