Production Stages and the Transmission of Technological Progress

CIRPEE Working Paper 08-02

39 Pages Posted: 17 Apr 2008

See all articles by Louis Phaneuf

Louis Phaneuf

Universite du Quebec a Montreal; Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE)

Nooman Rebei

Government of Canada - Research Department

Date Written: April 2008

Abstract

We develop and estimate a DSGE model which realistically assumes that many goods in the economy are produced through more than one stage of production. Firms produce differentiated goods at an intermediate stage and a final stage, post different prices at both stages, and face stage-specific technological change. Wage-setting households are imperfectly competitive with respect to labor skills. Intermediate-stage technology shocks explain most of short-run output fluctuations, whereas final-stage technology shocks only have a small impact. Despite the dominance of technology shocks, the model predicts a near-zero correlation between hours worked and the return to work and mildly procyclical real wages. The factors mainly responsible for these findings are an input-output linkage between firms operating at the different stages and movements in the relative price of goods. We show that, depending the source, a technology improvement may either have a contractionary or expansionary impact on employment.

Keywords: Business Cycles, Production Stages, Technological Change, Nominal Rigidities

JEL Classification: E32

Suggested Citation

Phaneuf, Louis and Rebei, Nooman, Production Stages and the Transmission of Technological Progress (April 2008). CIRPEE Working Paper 08-02, Available at SSRN: https://ssrn.com/abstract=1121820 or http://dx.doi.org/10.2139/ssrn.1121820

Louis Phaneuf (Contact Author)

Universite du Quebec a Montreal ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada
514-987-6181 (Phone)

Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE)

Pavillon De Sève
Ste-Foy, Quebec G1K 7P4
Canada

Nooman Rebei

Government of Canada - Research Department ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada

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