PRODUCTIVITY SHOCKS IN A SECTORAL REAL BUSINESS-CYCLE MODEL FOR WEST-GERMANY

If aggregate output is driven by integrated productivity shocks, then sectoral output series should display few, if any, cointegrating relat ionships. Similarly, serial correlation cofeature should be a rare occ urrence. These conjectures are confirmed in an analysis with West Germ an data. However, productivity shocks, identified and tested in an ext ended version of the Long and Plosser real business cycle model, do no t contain enough unit roots to account for those found in the output s eries. Hence productivity shocks can at best provide a partial explana tion for aggregate output fluctuations. (C) 1998 Elsevier Science B.V. All rights reserved.