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Federal Reserve Bank of Dallas
Globalization and Monetary Policy Institute Working Paper
Are predictable improvements in TFP contractionary or expansionary? implications from sectoral TFP
Deokwoo Nam
Jian Wang
Abstract

We document in the US data: (1) The dominant predictable component of investment-sector TFP is its long-run movements, and a favorable shock to predictable changes in investmentsector TFP induces a broad economic boom that leads actual increases in investment-sector TFP by almost two years, and (2) predictable changes in consumption-sector TFP occur mainly at short forecast horizons, and a favorable shock to such predictable changes leads to immediate reductions in hours worked, investment, and output as well as an immediate rise in consumption-sector TFP. We argue that these documented differences in the responses to shocks to predictable sectoral TFP changes can reconcile the seemingly contradictory findings in Beaudry and Portier (2006) and Barsky and Sims (2011), whose analyses are based on aggregate TFP measures. In addition, we find that shocks to predictable changes in investment-sector TFP account for 50% of business cycle fluctuations in consumption, hours, investment, and output, while shocks to predictable changes in consumption-sector TFP explain only a small fraction of business cycle fluctuations of these aggregate variables.


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Deokwoo Nam & Jian Wang, Are predictable improvements in TFP contractionary or expansionary? implications from sectoral TFP, Federal Reserve Bank of Dallas, Globalization and Monetary Policy Institute Working Paper 114, 2012.
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Note: Published as: Nam, Deokwoo and Jian Wang (2014), "Are Predictable Improvements in TFP Contractionary or Expansionary: Implications from Sectoral TFP?" Economics Letters 124 (2): 171-175.
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