Learning and Shifts in Trend Growth
AbstractShifts in the underlying growth rate of productivity, such as occurred in the 1970s and the 1990s, are relatively rare and difficult to identify in real time. In this paper, we document that economists' projections of trend productivity growth adjust gradually to shifts in trend growth. We find that long-run expectations of growth are well described by a simple updating rule based on an estimated Kalman filter model. We then examine the effects of shifts in trend productivity growth in an optimization-based growth model. If immediately recognized, an increase in the trend growth causes long-term interest rates to rise and a sharp decline in employment and investment. In contrast, with gradual learning, a productivity acceleration sets off a sustained employment and investment boom and a gradual rise in long-term interest rates, a pattern consistent with the experience of the 1990s
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 97.
Date of creation: 2004
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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Kalman filter; real-time data; productivity; signal extraction;
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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