What dotechnologyshockstellusabouttheNew Keynesianparadigm

Researchershaveusedunanticipatedchangestomonetarypolicytoidentifypreference and technologyparametersofmacroeconomicmodels.Thispaperuseschangesin technologytoidentifythesamesetofparameters.Estimatesbasedontechnology shocks differsubstantiallyfromthosebasedonmonetarypolicyshocks.Inthepost- WorldWarIIUnitedStates,apositivetechnologyshockreducesinflationandincreases hoursworked,significantlyandrapidlyinbothcases.Relativetopolicyshock identification,technologyshockidentificationimplies:(i) longdurationdurabilityin preferences instead ofshortdurationhabit,(ii) built-ininflationinertiadisappears and priceflexibilityincreases. Inresponsetotechnologicalimprovement,consumption durability increaseshoursworkedbecausehouseholdstemporarilyincreaselabor supplytoaccumulatedurablestowardsanew,highersteadystatelevel.Limited nominalrigiditiesallowinflationtofallbecausefirmsareabletoimmediatelycutprices whenhouseholds’laborsupplyincreases.Finally,weconsideralternativedata constructionsandeconometricspecifications;wefindthat(i)and/or(ii)holdinnearly every case.