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American Economic Review Vol. 96 No. 5 2006

Are Technology Improvements Contractionary?

Susanto Basu1; John G. Fernald2; Miles Kimball3

1 Department of Economics, Boston College, 140 Commonwealth Avenue, Chestnut Hill, MA 02467-3806, and National Bureau of Economic Research. · 2 Economic Research MS 1130, Federal Reserve Bank of San Francisco, 101 Market Street, San Francisco, CA 94105. · 3 Department of Economics, University of Michigan, 611 Tappan Street, Ann Arbor, MI 41809-1220, and NBER.

Abstract

Yes. We construct a measure of aggregate technology change, controlling for aggregation effects, varying utilization of capital and labor, nonconstant returns, and imperfect competition. On impact, when technology improves, input use and nonresidential investment fall sharply. Output changes little. With a lag of several years, inputs and investment return to normal and output rises strongly. The standard one-sector real-business-cycle model is not consistent with this evidence. The evidence is consistent, however, with simple sticky-price models, which predict the results we find: when technology improves, inputs and investment generally fall in the short run, and output itself may also fall.

DOI
10.1257/aer.96.5.1418
Volume
96
Issue
5
Pages
1418-1448
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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