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Are Technology Improvements Contractionary?

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  • Susanto Basu
  • John Fernald
  • Miles Kimball

Abstract

Yes. We construct a measure of aggregate technology change, controlling for imperfect competition, varying utilization of capital and labor, and aggregation effects. On impact, when technology improves, input use falls sharply, and output may fall slightly. With a lag of several years, inputs return to normal and output rises strongly. We discuss what models could be consistent with this evidence. For example, standard one-sector real-business-cycle models are not, since they generally predict that technology improvements are expansionary, with inputs and (especially) output rising immediately. However, the evidence is consistent with simple sticky-price models, which predict the results we find: When technology improves, input use generally falls in the short run, and output itself may also fall.

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Bibliographic Info

Paper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 1986.

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Date of creation: 2002
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Handle: RePEc:fth:harver:1986

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  1. Show Me the Money!
    by ? in Confessions of a Supply-Side Liberal on 2013-03-20 08:01:38
  2. Central Bank Incompetence Makes Luddites Correct
    by Matthew Yglesias in Moneybox on 2013-03-21 14:37:33
  3. Quartz 18-->Show Me the Money!
    by ? in Confessions of a Supply-Side Liberal on 2013-05-07 07:30:20
  4. Sticky Prices vs. Sticky Wages: A Debate Between Miles Kimball and Matthew Rognlie
    by ? in Confessions of a Supply-Side Liberal on 2013-06-26 00:31:03
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