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Some Implications of Using Prices to Measure Productivity in a Two-Sector Growth Model

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  • Milton H. Marquis
  • Bharat Trehan

Abstract

A two-sector growth model is used to study U.S. productivity growth since the 1960s. Sector-specific measures of productivity are constructed by imposing theoretical restrictions from this model on data on factor prices and the relative price of capital. Under the identifying restriction that capital-specific productivity growth be orthogonal to economy-wide productivity growth, shifts in TFP growth can be explained in terms of an economy-wide productivity growth slowdown in the mid-1970s and an acceleration in productivity growth in the capital goods sector in the mid-1990s. Also, interpreting changes in the relative price of capital as capital-specific technological change implies a theoretical restriction on the productivity processes that is rejected by our data.

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  • Milton H. Marquis & Bharat Trehan, 2003. "Some Implications of Using Prices to Measure Productivity in a Two-Sector Growth Model," Working Paper Series 2001-10, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:2001-10
    DOI: 10.24148/wp2001-10
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    References listed on IDEAS

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    Cited by:

    1. Tang, Jenn-Hong, 2007. "Gross job flows and technology shocks in nondurable and durable goods sectors," Journal of Macroeconomics, Elsevier, vol. 29(2), pages 326-354, June.

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