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Technology Shocks and Business Cycle: An Analysis Based on the Malmquist Index

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  • Mark J. Lee

    () (Department of Economics, Towson University)

Abstract

The goal of this study examines the quantitative implications of the Malmquist index in a standard Real Business Cycle (RBC) model as a measure of technology shock. To achieve this, the paper first investigates the empirical validity of the equivalence proposition on the two technology shock measures: a relatively new Malmquist Index and the predominant Solow residual. On the basis of permutation tests, this paper shows the observational equivalence of the two measures. Then, the role of technology shock measured by the Malmquist index in the RBC model is examined. The study uncovers that the RBC model with the Malmquist index successfully replicates the stylized U.S. business cycle features documented in the existing literature. Finally, this paper discusses potential benefits of the Malmquist index in the business cycle studies.

Suggested Citation

  • Mark J. Lee, 2009. "Technology Shocks and Business Cycle: An Analysis Based on the Malmquist Index," Working Papers 2009-04, Towson University, Department of Economics, revised Dec 2009.
  • Handle: RePEc:tow:wpaper:2009-04
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    File URL: http://webapps.towson.edu/cbe/economics/workingpapers/2009-04.pdf
    File Function: First version, 2009
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    More about this item

    Keywords

    Malmquist Index; Observational Equivalence; Solow Residual; RBC Model; Aggregate Technology Shocks.;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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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