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Stochastic Technical Progress, Nearly Smooth Trends and Distinct Business Cycles

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Julio J. Rotemberg

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Abstract

This paper investigates whether it is possible to entertain simultaneously two attractive views about US GDP. The first is that long term growth in US GDP is attributable to an empirically plausible specification of random technical progress. The second is that deviations of GDP from a fitted smooth 'trend' are mostly attributable to shocks that have only temporary effects, so that they are unrelated to the shocks to technical progress that lead to long term growth. The paper shows that these two views are not incompatible by constructing a model where stochastic technical progress (whose properties are calibrated to fit some features of US data) has essentially no effect on suitably detrended time series of GDP. The paper also studies variations in wedges between price and marginal cost that are capable of giving rise to these transitory movements.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8919.

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Date of creation: May 2002
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Publication status: published as Rotemberg, Julio J. "Stochastic Technical Progress, Smooth Trends, And Nearly Distinct Business Cycles," American Economic Review, 2003, v93(5,Dec), 1543-1559.
Handle: RePEc:nbr:nberwo:8919

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Find related papers by JEL classification:
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier. [Downloadable!] (restricted)
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  2. Galí, Jordi & Gertler, Mark & Lopez-Salido, Jose David, 2002. "Markups, Gaps and the Welfare Costs of Business Fluctuations," CEPR Discussion Papers 3212, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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