Secular Trends and Technological Progress
50 Pages Posted: 7 Jul 2017 Last revised: 23 Oct 2017
Date Written: June 30, 2017
Technological progress enhancing the productivity of intangible capital can account for several long term financial trends since 1980. Critically, creating intangibles requires the commitment of human capital rather than physical investment, so firms need less external finance. In general equilibrium, a falling credit demand can explain reduced tangible investment along with falling interest rates. Excess savings boost asset valuations and flow to other assets such as real estate. Rising house prices combined with increasing wage inequality increase mortgage credit demand, household leverage and default risk. While demographics, trade and capital flows may have a strong impact on savings glut and factor productivity, only a major productivity shift to intangibles can account for all major trends, including rising income inequality.
Keywords: Intangible capital, skill-biased technological change, mortgage credit, human capital, excess savings, house prices
JEL Classification: D33, E22, G32, J24
Suggested Citation: Suggested Citation