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Stochastic Technical Progress, Nearly Smooth Trends and Distinct Business Cycles

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  • Julio J. Rotemberg

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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Bibliographic Info

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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  1. Jordi Galí & Mark Gertler & J. David López-Salido, 2003. "Markups, Gaps, and the Welfare Costs of Business Fluctuations," Working Papers 45, Barcelona Graduate School of Economics.
  2. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
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Cited by:
  1. Susanto Basu & John G. Fernald, 2009. "What do we know and not know about potential output?," Working Paper Series 2009-05, Federal Reserve Bank of San Francisco.

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