engleski

Technology, Employment, and the Business Cycle in Post-transition Countries of the EU

This paper analyses the importance of technology and non-technology shocks in business cycles of European Union post- transition countries. A technology shock is defined in a structural vector autoregression model as the only shock with the positive long run impact on labour productivity. Different assumptions of New Keynesian and Real Business Cycle theory are tested. Positive technology shock decreases employment in the short run, which is an indicator of nominal rigidities. Results demonstrate that the non-technology shock is more important in explaining business cycles in post-transition countries, although technology shock is not trivial. The technology shock cannot replicate basic business cycle facts observed in the data: it produces low or negative correlation between employment and GDP, and strong negative correlation between labour productivity and employment. Technology and non-technology GDP components are analysed in transition and post-transition period, which is of special interest for post-transition countries. Results show the non-technology shock was the dominant source of business cycles both during and after the transition period. Global recession in 2008 was also result of a decrease in non-technology GDP component. Real Business Cycle theory is not in compliance with obtained results.

business cycles; post-transition countries; transition; New-Keynesian theory; real business cycle; technology shocks; demand shocks; nominal rigidities; SVAR model

This work has been fully supported by Croatian Science Foundation under the project 7031.