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Technology Diffusion and Business Cycle Asymmetry

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Author Info
Toshiya Ishikawa
Abstract

The goal of this paper is to theoretically account for business cycle asymmetries of deepness and steepness. The former means that recessions are deeper than expansions are tall, and the latter that recessions are steeper than expansions. In this paper I introduce the process of technology diffusion and learning like general purpose technology in the framework of real business cycles. I assume that a positive technology shock diffuses over the economy with some time lag, while a negative one does without any lag. Generally, a positive shock can be literally interpreted as an innovation to technology. Economic agents may take some time to adopt a new technology and learn how to use the technology efficiently. In contrast, a negative shock can immediately decrease the level or growth of productivity. No learning is needed to suffer a loss of productivity induced by a negative shock. A positive shock makes the near-future level of productivity higher than the present level as a result of technology diffusion. Because of intertemporal substitution behavior, it leads to a recession in the present and then the subsequent expansion. In contrast, a negative innovation is assumed to immediately generate a recession. When an S-shaped diffusion is assumed, a positive shock can induce a deeper and steeper recession. This gives a theoretical explanation of deepness and steepness asymmetries.

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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c009_016.

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Length: 38 pages
Date of creation: Jun 2004
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Handle: RePEc:deg:conpap:c009_016

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Related research
Keywords: Keywords: Technology Diffusion; Intertemporal Substitution; Real Business Cycles;

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes

References listed on IDEAS
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