Technology Shocks and Robust Sign Restrictions in a Euro Area SVAR

We use a model-based identification strategy to estimate the impact of technology, labor supply, monetary policy and aggregate demand shocks on hours worked and employment in the euro area. The restrictions applied in the SVAR analysis are consistent with a large class of DSGE models and are robust given a sensible range of parametrization. In contrast to most of the existing literature for the United States, our results are in line with the conventional real business cycle interpretation that hours worked rise as a result of a positive technology shock. In addition, we also find an important role for technology shocks in explaining business cycle fluctuations.