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Productivity and U.S. macroeconomic performance: interpreting the past and predicting the future with a two-sector real business cycle model

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  • Peter N. Ireland
  • Scott Schuh

Abstract

A two-sector real business cycle model, estimated with postwar U.S. data, identifies shocks to the levels and growth rates of total factor productivity in distinct consumption- and investment-goods- producing technologies. This model attributes most of the productivity slowdown of the 1970s to the consumption-goods sector; it suggests that a slowdown in the investment-goods sector occurred later and was much less persistent. Against this broader backdrop, the model interprets the more recent episode of robust investment and investment-specific technological change during the 1990s largely as a catch-up in levels that is unlikely to persist or be repeated anytime soon.

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Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 06-10.

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Date of creation: 2006
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Handle: RePEc:fip:fedbwp:06-10

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Keywords: Business cycles ; Productivity;

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