UK productivity: the long and the short of it

Kostas Mouratidis, Georgios Papapanagiotou and Christoph Thoenissen ()
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Christoph Thoenissen: Department of Economics, University of Sheffield, Sheffield S1 4DT, UK

No 2024005, Working Papers from The University of Sheffield, Department of Economics

Abstract: The level of productivity is an important macroeconomic indicator that informs monetary policy decisions. Since the 2008 financial crisis, UK productivity has plunged and remained below its pre-crisis level for more than a decade. Evidence that the European debt crisis was generated by a fall of productivity and subsequent current account deficit of South euro area countries raises challenging questions about the impact of productivity on the UK’s business cycle. We measure this impact by accounting for both permanent and transitory shocks to total factor productivity (TFP) and investment-specific technology (IST). Our results suggest that permanent positive TFP and IST shocks worsen the trade balance by increasing domestic absorption and appreciating the real exchange rate. However, the real exchange rate itself has no effect on net trade. In contrast, cyclical productivity shocks do not impact trade or the real exchange rate. Finally, our findings show that the financial crisis had a long-run negative impact on both output and trade.

Keywords: Productivity; Trade Balance; International Business Cycle; Cointegration and GVAR (search for similar items in EconPapers)
JEL-codes: C11 C23 C32 F14 F21 F32 F44 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2024-06
New Economics Papers: this item is included in nep-eec, nep-eff and nep-opm
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