Growth, Slowdowns, and Recoveries
39 Pages Posted: 16 Mar 2015 Last revised: 11 Apr 2015
Date Written: November 1, 2014
We construct and estimate a model that features endogenous growth and technology diffusion. The spillover effects from research and development provide a link between business cycle fluctuations and long-term growth. Therefore, productivity growth is related to the state of the economy. Shocks to the marginal efficiency of investment explain the bulk of the low-frequency variation in growth rates. Transitory inflationary shocks lead to persistent declines in economic growth. During the Great Recession, technology diffusion dropped sharply, while long-term growth was not significantly affected. The opposite occurred during the 2001 recession. The growth mechanism induces positive comovement between consumption and investment.
Keywords: DSGE model, Endogenous growth, Technology Diffusion, Business cycles, Bayesian Methods
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