Sources of fluctuations in hours worked for Canada, Germany, Japan and the U.S. a sign restriction VAR approach

Hyeon seung Huh, David Kim

Research output: Contribution to journalArticle

Abstract

This study empirically examines the sources of fluctuations in hours worked in Canada, Germany, Japan and the U.S. It is particularly motivated by Galí’s (1999) VAR study, which demonstrates that a positive technology shock reduces hours worked, at least in the short run. However, in the present study, a technology shock is identified without recourse to Galí’s long-run restriction, which has been subject to active controversy. Furthermore, this study uncovers other important sources of fluctuations in hours worked to reflect the concern, raised by numerous studies, that technology shocks leave most variations in hours worked unexplained. Specifically, there are six shocks underlying our model, and they are identified using a set of sign restrictions. The empirical results confirm that in all four countries, a positive technology shock significantly reduces hours worked. This technology shock, along with labor supply and demand shocks, accounts for most of the short-term variations in hours worked. As the forecasting horizon increases, technology and demand shocks become less important, whereas labor supply shocks contribute to explaining the bulk of long-run variations in hours worked. Finally, the empirical relevance of Galí’s long-run identification restriction is tested and the results are related to those obtained using the sign restriction model.

Original languageEnglish
Pages (from-to)1634-1646
Number of pages13
JournalApplied Economics
Volume51
Issue number15
DOIs
Publication statusPublished - 2019 Mar 28

Bibliographical note

Funding Information:
The authors thank an anonymous referee for constructive comments and suggestions on an earlier draft of the paper. This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2017S1A5A2A01025214).

Funding Information:
This work was supported by the Ministry of Education of Republic of Korea and the National Research Foundation of Korea [NRF-2017S1A5A2A01025214].

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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