R&D and aggregate fluctuations

Erhan Artuc and Panayiotis Pourpourides

Journal of Economic Dynamics and Control, 2014, vol. 47, issue C, 54-71

Abstract: Empirical observations raise interesting questions regarding the sources of the excessive volatility in the R&D sector as well as the nature of the relation between the sector and aggregate fluctuations. Using US data for the period 1959–2007, we identify sectoral technology and capital investment-specific shocks by employing a Vector Autoregression. The identifying assumptions are motivated by a two-sector dynamic general equilibrium model. Controlling for real and nominal factors, we find that capital investment-specific shocks explain 70 percent of fluctuations of R&D investment, while R&D technology shocks explain 30 percent of the variation of aggregate output, net of R&D investment. Technology shocks jointly explain almost all the variation of output in the R&D sector and 78 percent of the variation of output in the rest of the economy. They also constitute the main factor of the procyclicality of R&D investment.

Keywords: Cycles; Technology shocks; Investment-specific shocks; R&D; VAR (search for similar items in EconPapers)
JEL-codes: C13 C32 C68 E32 O3 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: R&D and Aggregate Fluctuations (2012)
Working Paper: R&D and Aggregate Fluctuations (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:47:y:2014:i:c:p:54-71

DOI: 10.1016/j.jedc.2014.07.006

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