Technological Revolutions and Debt Hangovers: Is There a Causal Link?

We look for historical evidence in favor or against the hypothesis that ``technological revolutions" cause macroeconomic ``debt hangovers". We qualify as ``technological revolution" a period of major technological innovation, as for instance the Information-Technology revolution of the 1990s. By ``debt hangover" we have in mind long periods of economic stagnation caused by high levels of private debt. We write a business cycle model with news and noise about long-run productivity. In the model, a technological revolution causes an acceleration of productivity followed by a deceleration. Because of learning, the technological revolution implies that agents are overoptimistic when productivity decelerates, implying a large accumulation of debt, and a subsequent debt hangover. We estimate our model using data for three episodes: U.S., 1990--2010; Japan, 1975--2003; and U.S., 1919--1933. The estimation shows that an acceleration and a deceleration of long-run productivity is present in the three samples considered, and that agents were overconfident about long-run productivity before the economic stagnation. In the three cases considered, the acceleration and deceleration of productivity match well-known historical episodes of technological transformation. Altogether, our findings suggest that the Great Recession, the Japanese Crisis of the 1990s and the Great Depression were all three caused by technological revolutions.