Technology, growth and the business cycle
Using a partial equilibrium model that allows for factor hoarding, I construct series on input utilization rates for ten OECD countries. These series are used in growth accounting computations of total factor productivity which filter out cyclical variations in input utilization rates. The main findings are as follows: (i) adjusted Solow residuals grow consistently faster than standard measures; (ii) the variability of the adjusted Solow residual is in some cases smaller than the standard residual's; (iii) adjusted Solow residuals are less procyclical than standard residuals, and fare better at usual exogeneity tests; (iv) supply shocks are no more synchronized between European countries than elsewhere; and (v) observed increased output synchronization in Europe is due to demand factors.
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