An unobserved components model of total factor productivity and the relative price of investment

Joshua Chan and Edouard Wemy

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper applies the common stochastic trends representation approach to the time series of total factor productivity and the relative price of investment to investigate the relationship between neutral technology and investment-specific technology. The permanent and transitory movements in both series are estimated efficiently via MCMC methods using band matrix algorithms. The results indicate that total factor productivity and the relative price of investment are, each, well-represented by an integrated process of order one. In addition, their time series share a common trend component that we interpret as reflecting changes in General Purpose Technology. These results suggest that (1) the traditional view of assuming that neutral technology and investment-specific technology follow independent processes is not supported by the features of the time series and (2) advances in information and communication technologies are general purpose technological progress that drive the trend in aggregate TFP in the United States.

Keywords: Business cycles; Investment-specific technological change; Total Factor Productivity; Unobserved Components Model (search for similar items in EconPapers)
JEL-codes: C32 E22 E32 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2020-12
New Economics Papers: this item is included in nep-eff, nep-ets, nep-ict and nep-mac
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Journal Article: An unobserved components model of total factor productivity and the relative price of investment (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2020-109

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