Working Paper: CEPR ID: DP5032
Authors: Pasquale Scaramozzino; Jonathan Temple; Nir Vulkan
Abstract: The economic boom of the USA in the 1990s was remarkable in its duration, the sustained rise in equipment investment, the reduced volatility of productivity growth, and continued uncertainty about the trend growth rate. In this paper we link these phenomena using an extension of the classic model of implementation cycles due to Shleifer (1986). The key idea is that uncertainty about the trend growth rate can lead firms to bring forward the implementation of innovations, temporarily eliminating expectations-driven business cycles, because delay is risky when beliefs are not common knowledge.
Keywords: implementation cycles; multiple equilibria; new economy
JEL Codes: E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Uncertainty about the trend growth rate (O49) | Immediate implementation of innovations (O35) |
| Immediate implementation of innovations (O35) | Reduced volatility in productivity growth (O49) |
| Immediate implementation of innovations (O35) | Reduced volatility in IPO activity (G24) |
| Uncertainty about the trend growth rate (O49) | Reduced volatility in productivity growth (O49) |
| Uncertainty about the trend growth rate (O49) | Reduced volatility in IPO activity (G24) |