Since Galí [1999], long-run restricted VARs have become the standard for identifying the effects of technology shocks. In a recent paper, Francis et al. [2008] proposed an alternative to identify technology as the shock that maximizes the forecast-error variance share of labor productivity at...

In a recent paper, Gali, Lopez-Salido, and Valles (2003) examined the Federal Reserve's response to VAR-identified technology shocks. They found that during the Martin-Burns-Miller era, the Fed responded to technology shocks by overstabilizing output, while in the Volcker-Greenspan era, the Fed...

Recent studies using long-run restrictions question the validity of the technology driven real business cycle hypothesis. We propose an alternative identification that maximizes the contribution of technology shocks to the forecast-error variance of labor productivity at a long, but finite,...