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What Is Driving The TFP Slowdown? Insights From a Schumpeterian DSGE Model

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  • Pinchetti, Marco

Abstract

In this paper, I incorporate a Schumpeterian mechanism of creative destruction in a medium-scale DSGE framework. In the model, a sector of profit-maximizing innovators invests in R&D and endogenously gen- erates productivity gains, ultimately determining the economy's growth rate. I estimate the model using Bayesian methods on U.S. data of the last 25 years (1993q1-2018q4) in order to disentangle the key forces underlying the productivity slowdown experienced by the US economy since the early 2000s. In contrast with the previous literature, I exploit Fernald (2014) data on TFP, factor utilization and labour quality to discipline the production function, and find that the bulk of the TFP slowdown is due to a decrease in innovation's ability to generate TFP gains. These findings challenge the view of a large part of the literature, according to which the recent TFP dynamics in the US are mostly driven by demand slumps and/or liquidity crunches.

Suggested Citation

  • Pinchetti, Marco, 2020. "What Is Driving The TFP Slowdown? Insights From a Schumpeterian DSGE Model," MPRA Paper 98316, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:98316
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    1. Two papers on the productivity slowdown
      by Christian Zimmermann in NEP-DGE blog on 2020-02-06 19:58:47

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    2. Cozzi, Guido & Pataracchia, Beatrice & Pfeiffer, Philipp & Ratto, Marco, 2021. "How much Keynes and how much Schumpeter?," European Economic Review, Elsevier, vol. 133(C).

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    More about this item

    Keywords

    DSGE model; Endogenous TFP; Schumpeterian Growth; TFP Slowdown;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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