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Are Technology Improvements Contractionary?

58 Pages Posted: 8 Jul 2004  

Susanto Basu

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

John G. Fernald

Federal Reserve Bank of San Francisco

Miles S. Kimball

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

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Date Written: June 2004

Abstract

Yes. We construct a measure of aggregate technology change, controlling for varying utilization of capital and labor, non-constant returns and imperfect competition, and aggregation effects. On impact, when technology improves, input use and non-residential investment fall sharply. Output changes little. With a lag of several years, inputs and investment 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 and investment demand generally fall in the short run, and output itself may also fall.

Suggested Citation

Basu, Susanto and Fernald, John G. and Kimball, Miles S., Are Technology Improvements Contractionary? (June 2004). NBER Working Paper No. w10592. Available at SSRN: https://ssrn.com/abstract=559242

Susanto Basu (Contact Author)

Boston College, College of Arts and Sciences, Department of Economics ( email )

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John G. Fernald

Federal Reserve Bank of San Francisco ( email )

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Miles S. Kimball

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Center for Economic and Social Research, USC ( email )

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