Understanding the Puzzling Effects of Technology Shocks

FRB of St. Louis Working Paper No. 2007-018A

26 Pages Posted: 18 Apr 2007

See all articles by Pengfei Wang

Pengfei Wang

Peking University HSBC Business School

Yi Wen

Federal Reserve Bank of St. Louis - Research Department; Tsinghua University

Date Written: April 2007

Abstract

Under aggregate technology shocks, both aggregate inputs and sectorial inputs decline initially and then rise permanently. However, under sector-specific technology shocks, sectorial inputs decline permanently. In addition, sectorial output is very responsive to aggregate technology shocks but not so to sector-specific technology shocks. We show that a flexible-price RBC model with firm entry and exit is consistent with these stylized facts.

Keywords: Technology Shocks, Entry and Exit, Labor Market, Sticky Prices, Demand Rigidity, Business Cycle

JEL Classification: E31, E32, E52

Suggested Citation

Wang, Pengfei and Wen, Yi, Understanding the Puzzling Effects of Technology Shocks (April 2007). FRB of St. Louis Working Paper No. 2007-018A, Available at SSRN: https://ssrn.com/abstract=980956 or http://dx.doi.org/10.2139/ssrn.980956

Pengfei Wang (Contact Author)

Peking University HSBC Business School ( email )

Yi Wen

Federal Reserve Bank of St. Louis - Research Department ( email )

411 Locust St
Saint Louis, MO 63011
United States
314-444-8559 (Phone)
314-444-8731 (Fax)

Tsinghua University ( email )

Beijing, 100084
China

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