Working Paper: NBER ID: w10592
Authors: Susanto Basu; John Fernald; Miles Kimball
Abstract: Yes. We construct a measure of aggregate technology change, controlling for varying utilization of capital and labor, non-constant returns and imperfect competition, and aggregation effects. On impact, when technology improves, input use and non-residential investment fall sharply. Output changes little. With a lag of several years, inputs and investment return to normal and output rises strongly. We discuss what models could be consistent with this evidence. For example, standard one-sector real-business-cycle models are not, since they generally predict that technology improvements are expansionary, with inputs and (especially) output rising immediately. However, the evidence is consistent with simple sticky-price models, which predict the results we find: When technology improves, input use and investment demand generally fall in the short run, and output itself may also fall.
Keywords: Technology Improvements; Aggregate Technology Change; Investment; Economic Models; Business Cycles
JEL Codes: E3; E2; O3; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technology Improvements (O33) | Input Use (C67) |
| Technology Improvements (O33) | Nonresidential Investment (R33) |
| Technology Improvements (O33) | Output (Y10) |
| Technology Improvements (O33) | Total Hours Worked (J22) |