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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

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.

Suggested Citation

  • Michael R. Pakko, 2001. "What happens when the technology growth trend changes?: transition dynamics, capital growth and the \"new economy\"," Working Papers 2001-020, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2001-020
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    More about this item

    Keywords

    Productivity; Technology; economic conditions - United States;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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