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Technology Innovations and the Volatility of Output: An International Perspective

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This paper aims at improving the measure of how much of the business cycle can be explained by technology innovations. For this, we measure the Solow residuals and calibrate a two country real business cycle model for 19 economies. A new procedure is used to determine the elasticity of substitution between domestic and foreign goods, giving for most of the economies a higher elasticity than commonly measured. Another finding is that technology innovations explain more of the business cycle in an open economy model than in a closed economy one. The key result is that the volatility of output is higher in the simulations than in the data for most of the economies, contrarily to common belief. Cette étude vise à améliorer la proportion du cycle conjoncturel explicable par des innovations technologiques. À cet effet, nous mesurons des résidus de Solow et calibrons un modèle du cycle réel à deux pays pour 19 économies. Une nouvelle procédure est utilisée pour déterminer l'élasticité de substitution entre biens domestique et étranger, menant pour la plupart des économies à une élasticité plus élevée que la valuer standard. Un autre résultat est qu'ouvrir une économie permet d'expliquer une plus grande partie du cycle. Le résultat principal est que l'amplitude du cycle est plus forte dans les simulations que dans les données pour la grande majorité des économies, au contraire de la croyance usuelle.

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Bibliographic Info

Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 34.

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Length: 25 pages
Date of creation: Dec 1994
Date of revision:
Handle: RePEc:cre:crefwp:34

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Related research

Keywords: open economy macroeconomics; real business cycle models;

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  1. Murray C. Kemp, 1962. "Errors Of Measurement And Bias In Estimates Of Import Demand Parameters1," The Economic Record, The Economic Society of Australia, vol. 38(83), pages 369-372, 09.
  2. Zimmermann, Christian, 1997. "International real business cycles among heterogeneous countries," European Economic Review, Elsevier, vol. 41(2), pages 319-356, February.
  3. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Dynamics of the Trade Balance and the Terms of Trade: The S-Curve," NBER Working Papers 4242, National Bureau of Economic Research, Inc.
  4. Kydland, Finn E. & Prescott, Edward C., 1988. "The workweek of capital and its cyclical implications," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 343-360.
  5. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262231204.
  6. Finn E. Kydland & Edward C. Prescott, 1989. "Hours and employment variation in business cycle theory," Discussion Paper / Institute for Empirical Macroeconomics 17, Federal Reserve Bank of Minneapolis.
  7. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-75, August.
  8. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22.
  9. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
  10. Kakwani, N C, 1972. "On the Bias in Estimates of Import Demand Parameters," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(2), pages 239-44, June.
  11. Dellas, Harris, 1986. "A real model of the world business cycle," Journal of International Money and Finance, Elsevier, vol. 5(3), pages 381-394, September.
  12. Hansen, Gary D., 1997. "Technical progress and aggregate fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 21(6), pages 1005-1023, June.
  13. Bennett T. McCallum, 1990. "Real Business Cycle Models," NBER Working Papers 2480, National Bureau of Economic Research, Inc.
  14. Barend A. de Vries, 1951. "Price Elasticities of Demand for Individual Commodities Imported into the United States," IMF Staff Papers, Palgrave Macmillan, vol. 1(1), pages 397-419, January.
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