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R&D and Aggregate Fluctuations

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Using US data for the period 1959-2007, we identify sectoral productivity shocks and capital investment-specific shocks by employing a Vector Autoregression whose shock structure is disciplined by a general equilibrium model. Controlling for real and nominal factors, we find that capital investment-specific shocks explain 70 percent of fluctuations of R&D investment while R&D technology shocks explain 30 percent of the variation of aggregate output net of R&D investment (i.e. the output of the non-R&D sector). Technology shocks jointly explain almost all the variation of output in the R&D sector and 78 percent of the variation of output in the non-R&D sector.

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Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2012/2.

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Length: 51 pages
Date of creation: Jan 2012
Handle: RePEc:cdf:wpaper:2012/2
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