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Diffusion Lags and Aggregate Fluctuations. New Name: Product Innovation and the Business Cycle

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  • Boyan Jovanovic
  • Saul Lach

Abstract

This paper studies how random product innovations affect the time series properties of aggregates. It posits that recurring inventions of new intermediate goods differ in quality, and that their usage spreads gradually through the economy. It examines how fluctuations in per capita GNP are affected by these features of the innovation process. Micro data from the U.S. show, first, that the dispersion of products' qualities is quite large: Its coefficient of variation is 0.56. More importantly, they also show that the rate of diffusion of new products is relatively slow; Only 4.3% of the potential market size is realized in every year. Because diffusion is so slow, the model explains only low frequency movements in per capita GNP in the G-7 countries.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4455.

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Date of creation: Sep 1993
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Publication status: published as International Economic Review, Vol. 38, No.1, February 1997, pp.3-22.
Handle: RePEc:nbr:nberwo:4455

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  1. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(367), pages 630-53, September.
  2. Michael B. Devereux & Allen C. Head & Beverly J. Lapham, 1993. "Exit and Entry, Increasing Returns to Specialization, and Business Cycles," Working Papers, Queen's University, Department of Economics 871, Queen's University, Department of Economics.
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Cited by:
  1. George Korres & Emmanuel Marmaras & George Tsobanoglou, 2004. "Enterpreneurship and innovation activites in the schumpeterian lines," ERSA conference papers ersa04p169, European Regional Science Association.
  2. Julio J. Rotemberg & Michael Woodford, 1994. "Is the Business Cycles a Necessary Consequence of Stochastic Growth?," NBER Working Papers 4650, National Bureau of Economic Research, Inc.
  3. Cooley, Thomas F. & Dwyer, Mark, 1998. "Business cycle analysis without much theory A look at structural VARs," Journal of Econometrics, Elsevier, Elsevier, vol. 83(1-2), pages 57-88.

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