What Happens when Technology Improves?

John Fernald ()

No 487, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: This paper extends the literature that explores the dynamic response of the economy to technology shocks. The shocks used are “direct” measures of aggregate technology, measured as Solow residuals (aka , total factor productivity, or TFP) with an adjustment for variations in labor effort and capital’s workweek. In addition, motivated by the growing body of literature on investment-specific technical change, the quarterly series is also decomposed into utilization-adjusted investment TFP and consumption TFP. As in Gali (1999) and Basu, Fernald, and Kimball (2006), hours worked fall for several periods following an improvement in technology.

Date: 2011
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