Technology, Growth and the Business Cycle

Abstract

The paper uses a partial equilibrium model to simulate times series on inputs utilization rates--capital utilization and labor effort--for 10 OECD countries. The resulting series are filtered from standard measures of the Solow residual. The main findings are as follows: once variable inputs utilization is accounted for, technology grows faster; the volatility of the adjusted residual increases in some instances, and it becomes significantly less procyclical in all cases. Furthermore, demand variables--such as government spending and monetary aggregates--only weakly Granger-cause developments in the adjusted measures, and only in few countries. Finally, supply shocks are no more correlated between European countries than elsewhere, so that increased output synchronization in Europe is likely to have arisen from demand factors.

Note: This is a description of the paper and not the actual abstract.

JEL Classification: O47, F41, E32