Download or read book The Effects of Permanent Technology Shocks on Labor Productivity and Hours in the RBC Model written by Jesper Lindé and published by . This book was released on 2006 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent work on the effects of permanent technology shocks argue that the basic RBC model cannot account for a negative correlation between hours worked and labor productivity. In this paper, I show that this conjecture is not necessarily correct. In the basic RBC model, I find that hours worked fall and labor productivity rises after a positive permanent technology shock once one allows for the possibility that the process for the permanent technology shock is slightly persistent in growth rates. A more serious limitation of the RBC model is its inability to generate a persistent rise in hours worked after a positive permanent technology shock along with a rise in labor productivity that are in line with what the data suggests. These results call for a reconsideration of the real and nominal frictions and policy response that need to be introduced in the basic RBC model in order to improve the model's ability to match the data.