Long-Run Productivity Shifts and Cyclical Fluctuations

Long-Run Productivity Shifts and Cyclical Fluctuations

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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.The reliability of our estimates can thus be assessed using standard model diagnostics, whereas mutually consistent ... Last but not least, in the absence of real-time survey data for Italian labor productivity, the predictions of our estimated Kalman filter model provide a good proxy for ... been drifting upa€”thanks to pension and labor market reformsa€”more than offsetting sluggish underlying factor efficiency.

Title:Long-Run Productivity Shifts and Cyclical Fluctuations
Author: Ms. Silvia Sgherri
Publisher:International Monetary Fund - 2005-12-01

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