Technology Innovation and Diffusion as Sources of Output and Asset Price Fluctuations
AbstractWe develop a model in which innovations in an economy's growth potential are an important driving force of the business cycle. The framework shares the emphasis of the recent "new shock" literature on revisions of beliefs about the future as a source of fluctuations, but differs by tieing these beliefs to fundamentals of the evolution of the technology frontier. An important feature of the model is that the process of moving to the frontier involves costly technology adoption. In this way, news of improved growth potential has a positive effect on current hours. As we show, the model also has reasonable implications for stock prices. We estimate our model for data post-1984 and show that the innovations shock accounts for nearly a third of the variation in output at business cycle frequencies. The estimated model also accounts reasonably well for the large gyration in stock prices over this period. Finally, the endogenous adoption mechanism plays a significant role in amplifying other shocks.
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Bibliographic InfoPaper provided by Harvard Business School in its series Harvard Business School Working Papers with number 09-134.
Length: 58 pages
Date of creation: Jun 2009
Date of revision:
Business Cycles; Endogenous Technology Adoption; News Shocks; Stock Market.;
Other versions of this item:
- Diego A. Comin & Mark Gertler & Ana Maria Santacreu, 2009. "Technology Innovation and Diffusion as Sources of Output and Asset Price Fluctuations," NBER Working Papers 15029, National Bureau of Economic Research, Inc.
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-30 (All new papers)
- NEP-BEC-2009-05-30 (Business Economics)
- NEP-DGE-2009-05-30 (Dynamic General Equilibrium)
- NEP-KNM-2009-05-30 (Knowledge Management & Knowledge Economy)
- NEP-MAC-2009-05-30 (Macroeconomics)
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