Long-Run Productivity Shifts and Cyclical Fluctuations: Evidence for Italy
37 Pages Posted: 3 Mar 2006
Date Written: December 2005
Abstract
Using unobserved stochastic components and Kalman filter techniques, the paper assesses the relative importance of transitory and permanent shifts in Italian real GDP within a production function framework. Evidence suggests that the increase in hours worked that has accompanied pension and labor market reforms accounts for the bulk of low-frequency variation in growth, but points to factor utilization as the main driver of business cycle fluctuations. In contrast with the predictions of standard Real Business Cycle models, a positive shock to the underlying rate of total factor productivity growth generates a slight decline in hours, whereas the response of output to the same shock is found to be positive.
Keywords: Productivity growth, business cycle, unobserved components models, filtering
JEL Classification: C22, C32, E32
Suggested Citation: Suggested Citation
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