Production Stages and the Transmission of Technological Progress

Louis Phaneuf and Nooman Rebei

Cahiers de recherche from CIRPEE

Abstract: We develop and estimate a DSGE model which realistically assumes that many goods in the economy are produced through more than one stage of production. Firms produce differentiated goods at an intermediate stage and a final stage, post different prices at both stages, and face stage-specific technological change. Wage-setting households are imperfectly competitive with respect to labor skills. Intermediate-stage technology shocks explain most of short-run output fluctuations, whereas final-stage technology shocks only have a small impact. Despite the dominance of technology shocks, the model predicts a near-zero correlation between hours worked and the return to work and mildly procyclical real wages. The factors mainly responsible for these findings are an input-output linkage between firms operating at the different stages and movements in the relative price of goods. We show that, depending the source, a technology improvement may either have a contractionary or expansionary impact on employment.

Keywords: Business Cycles; Production Stages; Technological Change; Nominal Rigidities (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:0802

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