Letting Different Views About Business Cycles Compete

37 Pages Posted: 13 May 2009 Last revised: 7 Nov 2022

See all articles by Paul Beaudry

Paul Beaudry

University of British Columbia (UBC) - Vancouver School of Economics; National Bureau of Economic Research (NBER)

Bernd Lucke

University of Hamburg - Faculty of Economics and Business Administration

Date Written: May 2009

Abstract

There are several candidate explanations for macro-fluctuations. Two of the most common discussed sources are surprise changes in disembodied technology and monetary innovations. Another popular explanation is found under the heading of a preference or more generally a demand shock. More recently two other explanations have been advocated: surprise changes in investment specific technology and news about future technology growth. The aim of this paper is to provide a quantitative assessment of the relative merits of all these explanations by adopting a framework which allows them to compete. In particular, we propose a co-integrated SVAR approach that encompasses all 5 shocks and thereby offers a coherent evaluation of the dynamics they induce as well as their contribution to macro volatility. Our main finding is that surprise changes in technology, whether it be of the disembodied or embodied nature, account for very little of fluctuations. In contrast, expected changes in technology appear to be an important force, with preference/demand shocks and monetary shocks also playing non-negligible roles.

Suggested Citation

Beaudry, Paul and Lucke, Bernd, Letting Different Views About Business Cycles Compete (May 2009). NBER Working Paper No. w14950, Available at SSRN: https://ssrn.com/abstract=1401795

Paul Beaudry (Contact Author)

University of British Columbia (UBC) - Vancouver School of Economics ( email )

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National Bureau of Economic Research (NBER)

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Bernd Lucke

University of Hamburg - Faculty of Economics and Business Administration ( email )

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Hamburg, 20146
Germany