Real Business Cycles or Sticky Prices? The Impact of Technology Shocks on US Manufacturing

In this paper we estimate industry-level VAR models at the 4-digit SIC level for a number of US manufacturing sectors, using TFP series which allow for variable factor utilisation over the cycle. This allows us to verify the relevance of alternative theoretical modelling approaches to the business cycle. Our results support standard RBC models, and models of nominal rigidity based on sticky wages. They offer little support to dynamic general equilibrium models based on imperfect competition and sticky prices. Our results extend those obtained recently by other researchers using aggregate data. JEL Classification: E32, O47