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What happens when the technology growth trend changes?: transition dynamics, capital growth and the "new economy"

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Michael R. Pakko

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Abstract

The rapid increase in U.S. economic growth during the late 1990s inspired speculation that an acceleration in the rate of technological progress had given rise to an increase in potential output growth. This paper considers the transition dynamics associated with such a change using a general equilibrium framework that incorporates stochastic growth trends. The model suggests that transition dynamics associated with a shift in the technological growth trend can have important implications for macroeconomic growth patterns, particularly when technological change is investment-specific. Simulations of the post-WWII U.S. economy show that the model's internal propagation mechanism is capable of explaining a significant portion of the variation in growth rates over the sample period, particularly for investment, capital accumulation, and employment.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2001-020.

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Date of creation: 2001
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Publication status: Published in Review of Economic Dynamics, April 2002, 5(2), pp. 376-407
Handle: RePEc:fip:fedlwp:2001-020

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Keywords: Productivity ; Technology ; Economic conditions - United States;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  5. King, Robert G & Rebelo, Sergio T, 1993. "Transitional Dynamics and Economic Growth in the Neoclassical Model," American Economic Review, American Economic Association, vol. 83(4), pages 908-31, September. [Downloadable!] (restricted)
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  6. Karl Whelan, 2000. "Computers, obsolescence, and productivity," Finance and Economics Discussion Series 2000-06, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  7. Michael T. Kiley, 1999. "Computers and growth with costs of adjustment: will the future look like the past?," Finance and Economics Discussion Series 1999-36, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  8. Watson, Mark W., 1989. "Recursive solution methods for dynamic linear rational expectations models," Journal of Econometrics, Elsevier, vol. 41(1), pages 65-89, May. [Downloadable!] (restricted)
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  11. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, Summer.
  12. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June. [Downloadable!] (restricted)
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  13. Jovanovic, Boyan & Lach, Saul, 1997. "Product Innovation and the Business Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 3-22, February.
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  14. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June. [Downloadable!] (restricted)
  15. Michael Gort & Jeremy Greenwood & Peter Rupert, 1999. "Measuring the Rate of Technological Progress in Structures," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 207-230, January. [Downloadable!] (restricted)
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  16. Andreas Hornstein, 1999. "Growth accounting with technological revolutions," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 1-22. [Downloadable!]
  17. J. Steven Landefeld & Barbara M. Fraumeni, 2001. "Measuring the New Economy," BEA Papers 0009, Bureau of Economic Analysis. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nicholas Oulton, . "Productivity versus welfare: or, GDP versus Weitzman's NDP," Bank of England working papers 163, Bank of England. [Downloadable!]
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  2. Peter N. Ireland & Scott Schuh, 2006. "Productivity and U.S. Macroeconomic Performance: Interpreting the Past and Predicting the Future with a Two-Sector Real Business Cycle Model," Boston College Working Papers in Economics 642, Boston College Department of Economics. [Downloadable!]
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  3. John G. Fernald, 2005. "Trend breaks, long-run restrictions, and the contractionary effects of technology improvements," Working Paper Series 2005-21, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  4. Michael R. Pakko, 2005. "Changing technology trends, transition dynamics and growth accounting," Working Papers 2000-014, Federal Reserve Bank of St. Louis. [Downloadable!]
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  5. Hasan Bakhshi & Jens Larsen, . "Investment-specific technological progress in the United Kingdom," Bank of England working papers 129, Bank of England. [Downloadable!]
  6. Peter N. Ireland, 2007. "On the Welfare Cost of Inflation and the Recent Behavior of Money Demand," Boston College Working Papers in Economics 662, Boston College Department of Economics. [Downloadable!]
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  7. William T. Gavin & Finn E. Kydland & Michael R. Pakko, 2006. "Monetary policy, taxes and the business cycle," Working Papers 2004-017, Federal Reserve Bank of St. Louis. [Downloadable!]
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  8. Hashmat Khan & Marjorie Santos, 2002. "Contribution of ICT Use to Output and Labour-Productivity Growth in Canada," Working Papers 02-7, Bank of Canada. [Downloadable!]
  9. Diego Martínez López & Jesús Rodríguez López & José Luis Torres Chacón, 2008. "ICT-specific technological change and productivity growth in the US 1980-2004," Working Papers 08.05, Universidad Pablo de Olavide, Department of Economics. [Downloadable!]
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  10. James B. Bullard & John Duffy, 2004. "Learning and structural change in macroeconomic data," Working Papers 2004-016, Federal Reserve Bank of St. Louis. [Downloadable!]
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