Working Paper: CEPR ID: DP5801
Authors: Luca Benati
Abstract: We use tests for multiple breaks at unknown points in the sample, and the Stock-Watson (1996, 1998) time-varying parameters median-unbiased estimation methodology, to investigate changes in the equilibrium rate of growth of labor productivity?both per hour and per worker?in the United States, the Eurozone Australia, and Japan over the post-WWII era. Results for the U.S. well capture the 'conventional wisdom? of a golden era of high productivity growth, the 1950s and 1960s; a marked deceleration starting from the beginning of the 1970s; and a strong growth resurgence starting from mid-1990s. Interestingly, evidence suggests the 1990s? productivity acceleration to have reached a plateau over the last few years. Results for the Eurozone point towards a marked deceleration since the beginning of the 1980s, with the equilibrium rate of growth of output per hour falling to 0.9% in 2004:4. Results based on Cochrane?s variance ratio estimator suggest a non-negligible fraction of the quarter-on-quarter change in labor productivity growth to be permanent. From a technical point of view, we propose a new method for constructing confidence intervals for variance ratio estimates based on spectral bootstrapping. Preliminary Monte Carlo evidence suggests such a method to possess good coverage properties.
Keywords: bootstrapping; frequency domain; median-unbiased estimation; Monte Carlo integration; structural break tests; time-varying parameters; variance ratio
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Equilibrium rate of growth of labor productivity has varied significantly across different periods and regions (O49) | Changes in labor productivity growth (O49) |
| U.S. experienced a high productivity growth era during the 1950s and 1960s (O49) | Changes in labor productivity growth (O49) |
| Marked deceleration starting in the 1970s (E11) | Changes in labor productivity growth (O49) |
| Resurgence from the mid-1990s (E65) | Changes in labor productivity growth (O49) |
| Continuous slowdown since the 1980s in the Eurozone (E11) | Changes in labor productivity growth (O49) |
| Notable fraction of quarter-on-quarter changes in labor productivity growth is permanent (O49) | Changes in labor productivity growth (O49) |
| Unit root in U.S. labor productivity growth is significant (O49) | Changes in labor productivity growth (O49) |