Understanding the Effect of Technology Shocks in SVARs with Long-Run Restrictions

This paper studies the statistical properties of impulse response functions in structural vector autoregressions (SVARs) with a highly persistent variable as hours worked and long-run identifying restrictions. The highly persistent variable is specified as a nearly stationary persistent process. Such process appears particularly well suited to characterized the dynamics of hours worked because it implies a unit root in finite sample but is asymptotically stationary and persistent. This is typically the case for per capita hours worked which are included in SVARs. Theoretical results derived from this specification allow to explain most of the empirical findings from SVARs which include U.S. hours worked. Simulation experiments from an estimated DSGE model confirm theoretical results.