Scandinavian Working Papers in Economics

Working Paper Series,
Trade Union Institute for Economic Research

No 174: Measures of Technology and the Business Cycle: Evidence from Sweden and the U.S.

Annika Alexius and Mikael Carlsson
Additional contact information
Annika Alexius: Trade Union Institute for Economic Research, Postal: FIEF, Wallingatan 38, SE-111 24 Stockholm, Sweden
Mikael Carlsson: Department of Economics, Postal: Uppsala University, Box 513, SE-751 20 Uppsala, Sweden

Abstract: Empirical evidence on the cyclical behavior of technology shocks, or the relative importance of technology shocks versus other structural shocks as sources of fluctuations, hinges crucially on the identification of technological changes. In this paper, we study different measures of technology in order to find out (i) to what extent they capture the same underlying phenomenon and (ii) whether the implications for macroeconomic theory vary between approaches. Several variations of the production function approach and structural VAR models are investigated: the classic Solow residual, the refined Solow residuals of Burnside et al (1995) and Basu and Kimball (1997), large cointegrated VAR models as in King et al (1991) and a small VAR in first differences à la Galí (1999). It turns out that the different measures of technological change are reasonably coherent when applied to US data. However, they are often insignificantly related in the case of Sweden. Furthermore, our results do not support the hypothesis that business cycle fluctuations are primarily drive by changes in technology.

Keywords: Technology shocks; Production function approach; Structural VAR models

JEL-codes: C32; D24; E32

47 pages, December 28, 2001

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