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 relationships. Similarly, serial correlation cofeature should be a rare occurrence. These conjectures are confirmed in an analysis with West German data. However, productivity shocks, identified and tested in an extended version of the Long and Plosser real business cycle model, do not contain enough unit roots to account for those found in the output series. Hence productivity shocks can at best provide a partial explanation for aggregate output fluctuations. (C) 1998 Elsevier Science B.V. All rights reserved.