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Stochastic Growth in the United States and Euro Area

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  • Peter N. Ireland

Abstract

This paper estimates, using data from the United States and Euro Area, a two-country stochastic growth model in which both neutral and investment-specific technology shocks are nonstationary but cointegrated across economies. The results point to large and persistent swings in productivity, both favorable and adverse, originating in the US but not transmitted to the EA. More specifically, the results suggest that while the EA missed out on the period of rapid investment-specific technological change enjoyed in the US during the 1990s, it also escaped the stagnation in neutral technological progress that plagued the US in the 1970s.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16681.

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Date of creation: Jan 2011
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Publication status: published as Peter N. Ireland, 2013. "Stochastic Growth In The United States And Euro Area," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 1-24, 02.
Handle: RePEc:nbr:nberwo:16681

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  1. Paul R. Bergin, 2004. "How Well Can the New Open Economy Macroeconomics Explain the Exchange Rate and Current Account?," NBER Working Papers 10356, National Bureau of Economic Research, Inc.
  2. Alejandro Justiniano & Giorgio Primiceri & Andrea Tambalotti, 2011. "Investment Shocks and the Relative Price of Investment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 101-121, January.
  3. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2008. "International Risk Sharing and the Transmission of Productivity Shocks," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 443-473.
  4. Rabanal, Pau & Tuesta, Vicente, 2010. "Euro-dollar real exchange rate dynamics in an estimated two-country model: An assessment," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(4), pages 780-797, April.
  5. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, American Economic Association, vol. 87(3), pages 342-62, June.
  6. David K. Backus & Gregor W. Smith, 1993. "Consumption and Real Exchange Rates in Dynamic Economies with Non-Traded Goods," Working Papers, Queen's University, Department of Economics 1252, Queen's University, Department of Economics.
  7. Pau Rabanal & Juan F. Rubio-Ramirez & Vicente Tuesta, 2009. "Cointegrated TFP processes and international business cycles," Working Paper, Federal Reserve Bank of Atlanta 2009-23, Federal Reserve Bank of Atlanta.
  8. Chang, Yongsung & Doh, Taeyoung & Schorfheide, Frank, 2005. "Non-stationary Hours in a DSGE Model," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5232, C.E.P.R. Discussion Papers.
  9. James A. Kahn & Robert W. Rich, 2003. "Tracking the new economy: using growth theory to detect changes in trend productivity," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Nov.
  10. Heathcote, Jonathan & Perri, Fabrizio, 1999. "Financial Autarky and International Business Cycles," Working Paper Series in Economics and Finance, Stockholm School of Economics 320, Stockholm School of Economics, revised 30 Apr 2000.
  11. Nicolas Coeurdacier & Robert Kollmann & Philippe Martin, 2010. "International portfolios, capital accumulation and foreign assets dynamics," Sciences Po publications, Sciences Po info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  12. Federico S. Mandelman & Pau Rabanal & Juan F. Rubio-Ramírez & Diego Vilán, 2010. "Investment-specific technology shocks and international business cycles: an empirical assessment," Working Paper, Federal Reserve Bank of Atlanta 2010-03, Federal Reserve Bank of Atlanta.
  13. Martin Boileau, 1999. "Trade in Capital Goods and Investment-Specific Technical Change," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 68, CREFE, Université du Québec à Montréal.
  14. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 24(10), pages 1405-1423, September.
  15. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, American Economic Association, vol. 78(3), pages 402-17, June.
  16. Marc-André Letendre & Daqing Luo, 2007. "Investment-specific shocks and external balances in a small open economy model," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 40(2), pages 650-678, May.
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Cited by:
  1. Takashi Kano, 2013. "Exchange Rates and Fundamentals:Closing a Two-country Model," UTokyo Price Project Working Paper Series, University of Tokyo, Graduate School of Economics 011, University of Tokyo, Graduate School of Economics.
  2. Pau Rabanal & Juan Rubio-Ramirez & Diego Vilan & Federico Mandelman, 2010. "Investment-Specific Technology Shocks and International Business Cycles: An Empirical Assessment," 2010 Meeting Papers, Society for Economic Dynamics 1175, Society for Economic Dynamics.
  3. Naohisa Hirakata & Takushi Kurozumi, 2013. "The International Finance Multiplier in Business Cycle Fluctuations," IMES Discussion Paper Series, Institute for Monetary and Economic Studies, Bank of Japan 13-E-12, Institute for Monetary and Economic Studies, Bank of Japan.

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