Technology creation, business cycles and monetary transmission

This paper examines how firms adjust their innovative activities during recessions and whether they learn from past downturns. Using COMPUSTAT data linked with patent and citation information, we analyze U.S. firms across four major recessions and test whether R&D expansion in one recession predicts R&D investment in the next. Exploiting recessions as exogenous shocks to the economy for identification, we find that firms performing above the median during the 2001 recession invested substantially more in R&D during the Great Recession. These learning effects are stronger for small firms, firms with high bond ratings, and those in high-technology or high-opportunity sectors, and weaker in concentrated industries. Earlier recessions also have a persistent, though gradually diminishing, effect on later downturns. Instrumental-variables and propensity-score-matching analyses confirm that these patterns reflect a learning mechanism consistent with creative accumulation.