Variance Properties of Solow's Productivity Residual and Their Cyclical Implications
72 Pages Posted: 13 Nov 2012
There are 2 versions of this paper
Variance Properties of Solow's Productivity Residual and Their Cyclical Implications
Date Written: February 1, 1994
Abstract
For the United States economy (1960-1989), the correlation between the growth rates of the Solow residual and the real price of energy (government spending) is -0.55 (0.09). The Solow residual confounds movements in energy prices and government spending with those in true technology. Why? To address this question, this study develops a model to see if it quantitatively captures the endogenous transmission mechanism underlying the observed Solow residual correlations. It does. The transmission mechanism depends on endogenous capital utilization. With this transmission mechanism in place, and with the occurrence of shocks to 'true' technology, energy prices, and government spending, the model economy accounts for 76 or 89 percent of U.S. output volatility, well matches the U.S. empirical regularities involving capital utilization and the Solow residual, and is generally consistent with other features of U.S. business cycles.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Equilibrium Commodity Prices with Irreversible Investment and Non-Linear Technology
By Jaime Casassus, Pierre Collin-dufresne, ...
-
Equilibrium Commodity Prices with Irreversible Investment and Non-Linear Technologies
By Jaime Casassus, Pierre Collin-dufresne, ...
-
Futures Prices in a Production Economy with Investment Constraints
By Leonid Kogan, Dmitry Livdan, ...
-
Futures Prices in a Production Economy with Investment Constraints
By Leonid Kogan, Dmitry Livdan, ...
-
Asset Storability and Price Discovery of Commodity Futures Markets: A New Look
By Jian Yang, David Bessler, ...
-
Equilibrium Exhaustible Resource Price Dynamics
By Murray Carlson, Zeigham Khokher, ...
-
Asymmetric Effect of Basis on Dynamic Futures Hedging: Empirical Evidence from Commodity Markets
By Donald D. Lien and Li Yang
-
Price Discovery and Volatility Spillovers in Index Futures Markets: Some Evidence from Mexico
By Maosen Zhong, Ali F. Darrat, ...
-
Spot-Futures Spread, Time-Varying Correlation, and Hedging with Currency Futures
By Donald D. Lien and Li Yang