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Stochastic Technical Progress, Smooth Trends, and Nearly Distinct Business Cycles

  • Julio J. Rotemberg

This paper studies a model of random technical progress where technology diffuses at realistically slow rates. It fits smooth trends to the sum of GDP series generated by this model and series representing transitory, or cyclical, fluctuations. Detrended GDP is then largely unrelated to technical progress. The detrending method proposed by Rotemberg (1999) reconstructs cyclical variations somewhat more accurately than the HP filter. With sufficiently slow diffusion it is also more accurate than a method based on VARs fitted to hours and GDP growth. Consistent with the model's predictions, permanent shocks initially depress both hours and output in these VARs.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 5 (December)
Pages: 1543-1559

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Handle: RePEc:aea:aecrev:v:93:y:2003:i:5:p:1543-1559
Note: DOI: 10.1257/000282803322655437
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  1. repec:cup:macdyn:v:4:y:2000:i:4:p:423-47 is not listed on IDEAS
  2. Gamber, Edward N & Joutz, Frederick L, 1993. "The Dynamic Effects of Aggregate Demand and Supply Disturbances: Comment," American Economic Review, American Economic Association, vol. 83(5), pages 1387-93, December.
  3. GalĂ­, Jordi, 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," CEPR Discussion Papers 1499, C.E.P.R. Discussion Papers.
  4. Helpman, Elhanan & Trajtenberg, Manuel, 1994. "A Time to Sow and a Time to Reap: Growth Based on General Purpose Technologies," CEPR Discussion Papers 1080, C.E.P.R. Discussion Papers.
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  16. Julio J. Rotemberg, 1999. "A Heuristic Method for Extracting Smooth Trends from Economic Time Series," NBER Working Papers 7439, National Bureau of Economic Research, Inc.
  17. Julio J. Rotemberg & Michael Woodford, 1991. "Markups and the Business Cycle," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 63-140 National Bureau of Economic Research, Inc.
  18. Rodolfo E. Manuelli, 2000. "Technological Change, the Labor Market and the Stock Market," NBER Working Papers 8022, National Bureau of Economic Research, Inc.
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