The Pre-Great Recession Slowdown in Productivity

55 Pages Posted: 4 Apr 2016

See all articles by Gilbert Cette

Gilbert Cette

Banque de France

John G. Fernald

Federal Reserve Bank of San Francisco

Benoit Mojon

Banque de France

Date Written: March 2016

Abstract

In the years since the Great Recession, many observers have highlighted the slow pace of productivity growth around the world. For the United States and Europe, we highlight that this slow pace began prior to the Great Recession. The timing thus suggests that it is important to consider factors other than just the deep crisis itself or policy changes since the crisis. For the United States, at the frontier of knowledge, there was a burst of innovation and reallocation related to the production and use of information technology in the second half of the 1990s and the early 2000s. That burst ran its course prior to the Great Recession. Continental European economies were falling back relative to that frontier at varying rates since the mid-1990s. We provide VAR and panel-data evidence that changes in real interest rates have influenced productivity dynamics in this period. In particular, the sharp decline in real interest rates that took place in Italy and Spain seem to have triggered unfavorable resource reallocations that were large enough to reduce the level of total factor productivity, consistent with recent theories and firm-level evidence.

Keywords: Productivity, ICT, Europe, convergence, capital flows, mis-allocation

JEL Classification: E23, E32, F45, O47, O52

Suggested Citation

Cette, Gilbert and Fernald, John G. and Mojon, Benoit, The Pre-Great Recession Slowdown in Productivity (March 2016). Banque de France Working Paper No. 586. Available at SSRN: https://ssrn.com/abstract=2758506 or http://dx.doi.org/10.2139/ssrn.2758506

Gilbert Cette (Contact Author)

Banque de France ( email )

Paris
France

John G. Fernald

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-2135 (Phone)

HOME PAGE: http://www.frbsf.org/economics/economists/jfernald.html

Benoit Mojon

Banque de France ( email )

Paris
France

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