Advanced Search
MyIDEAS: Login

News Shocks and Costly Technology Adoption

Contents:

Author Info

  • Yi-Chan Tsai

    (The Ohio State University)

Registered author(s):

    Abstract

    I study the macroeconomic response to news of future technological innovation under the assumption that firms cannot frictionlessly shift from existing capital stocks to new varieties associated with the impending advance in technology. Combining this new element with variable capital utilization and preferences designed to minimize wealth effects on labor supply, I develop a model that simultaneously accounts for four stylized facts: (1) slow diffusion of new technologies, (2) lumpiness in microeconomic investment, (3) stock prices leading measured productivity, and (4) comovement of consumption, investment and labor hours. On news of a coming technological innovation, firms begin to invest in new capital goods which will allow them to benefit from the innovation once it arrives. Because fixed costs lead some to delay adoption, there is slow diffusion of the new technology. At the firm level, investment in new technology follows an (S, s) rule, and at the aggregate level the model generates a hump-shaped investment pattern typical of the data. Moreover, the introduction of new capital causes the price of old capital to fall, leading stock prices to rise on news of the new technology. Finally, variable capital utilization slows the onset of diminishing returns to labor, so that work hours rise instantly, permitting rises in both consumption and investment.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.economicdynamics.org/meetpapers/2010/paper_567.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 567.

    as in new window
    Length:
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:red:sed010:567

    Contact details of provider:
    Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
    Fax: 1-314-444-8731
    Email:
    Web page: http://www.EconomicDynamics.org/society.htm
    More information through EDIRC

    Related research

    Keywords:

    References

    References listed on IDEAS
    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.:
    as in new window
    1. Aubhik Khan & Julia K. Thomas, 2000. "Nonconvex factor adjustments in equilibrium business cycle models: do nonlinearities matter?," Working Papers 00-10, Federal Reserve Bank of Philadelphia.
    2. Aubhik Khan & B. Ravikumar, 2000. "Costly technology adoption and capital accumulation," Working Papers 00-7, Federal Reserve Bank of Philadelphia.
    3. Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2011. "Monetary Policy and Stock Market Booms," Working Papers 2011-005, Banco Central de Reserva del PerĂº.
    4. Cooley, T.F. & Greenwood, J. & Yorukoglu, M., 1995. "The Replacement Problem," UWO Department of Economics Working Papers 9508, University of Western Ontario, Department of Economics.
    5. Robert B. Barsky & Eric R. Sims, 2009. "Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence," NBER Working Papers 15049, National Bureau of Economic Research, Inc.
    6. Andrew Atkeson & Patrick J. Kehoe, 2007. "Modeling the Transition to a New Economy: Lessons from Two Technological Revolutions," American Economic Review, American Economic Association, vol. 97(1), pages 64-88, March.
    7. Jovanovic, Boyan & Rousseau, Peter L., 2005. "General Purpose Technologies," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 18, pages 1181-1224 Elsevier.
    8. Mark E. Doms & Timothy Dunne, 1998. "Capital Adjustment Patterns in Manufacturing Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 409-429, April.
    9. Jovanovic, Boyan & Nyarko, Yaw, 1996. "Learning by Doing and the Choice of Technology," Econometrica, Econometric Society, vol. 64(6), pages 1299-1310, November.
    10. Jeffrey R. Campbell, 1997. "Entry, Exit, Embodied Technology, and Business Cycles," NBER Working Papers 5955, National Bureau of Economic Research, Inc.
    11. Andrew Atkeson & Patrick J. Kehoe, 2001. "The transition to a new economy after the Second Industrial Revolution," Working Papers 606, Federal Reserve Bank of Minneapolis.
    12. Jeffrey R. Campbell, 1997. "Computational Appendix to Entry, Exit, Embodied Technology, and Business Cycles," Technical Appendices campbell98, Review of Economic Dynamics.
    13. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August.
    14. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
    15. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
    16. David, Paul A, 1990. "The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox," American Economic Review, American Economic Association, vol. 80(2), pages 355-61, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:red:sed010:567. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.