Are Technology Improvements Contractionary?

65 Pages Posted: 14 Jan 1999

See all articles by Susanto Basu

Susanto Basu

National Bureau of Economic Research (NBER); Boston College, College of Arts and Sciences, Department of Economics

John G. Fernald

Federal Reserve Bank of San Francisco

Miles S. Kimball

University of Colorado Boulder; University of Michigan at Ann Arbor - Department of Economics; Center for Economic and Social Research, USC; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2002

Abstract

Yes. We construct a measure of aggregate technology change, controlling for imperfect competition, varying utilization of capital and labor, and aggregation effects. On impact, when technology improves, input use falls sharply, and output may fall slightly. With a lag of several years, inputs return to normal and output rises strongly. We discuss what models could be consistent with this evidence. For example, standard one-sector real-business-cycle models are not, since they generally predict that technology improvements are expansionary, with inputs and (especially) output rising immediately. However, the evidence is consistent with simple sticky-price models, which predict the results we find: When technology improves, input use generally falls in the short run, and output itself may also fall.

JEL Classification: D24, E32, E52, E22, E24, O47

Suggested Citation

Basu, Susanto and Basu, Susanto and Fernald, John G. and Kimball, Miles S., Are Technology Improvements Contractionary? (December 2002). Available at SSRN: https://ssrn.com/abstract=137860 or http://dx.doi.org/10.2139/ssrn.137860

Susanto Basu (Contact Author)

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