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,...

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...