Technology Shocks and Robust Sign Restrictions in a Euro Area SVAR

Abstract

This paper provides evidence for the impact of technology, labor supply, monetary policy and aggregate spending shocks on hours worked in the Euro area. The evidence is based on a vector autoregression identified using sign restrictions that are consistent with both sticky price and real business cycle models. In contrast to most of the existing literature for the US, evidence of a positive response of hours to technology shocks is found, which is consistent with the conventional real business cycle interpretation and at odds with sticky price models. In addition, an important role for technology shocks in explaining business cycle fluctuations is found.

Keywords: Technology shocks, Real business cycle models, Sticky price models, Vector autoregressions

JEL Classification: E32, E24