Pure technology gaps and production predictability

Ziemowit Bednarek

The Quarterly Review of Economics and Finance, 2016, vol. 59, issue C, 39-50

Abstract: An average machine lags in terms of productivity and technological advancement behind a cutting-edge machine. This lag was first defined by Cummins and Violante (2002) as the technology gap. Using the vector error correction model, I show that the technology gap is cointegrated with human capital factors, and then decompose it into a long-run trend and a transitory mean-reverting component, which I term as the pure technology gap. I show that the pure technology gap has a predictive power for the aggregate production. Intuitively, a high pure technology gap acts as an economic shock that increases production in the long term due to a higher future productivity level.

Keywords: Technology gap; Productivity; Price index; Log utility; Vector error correction model; Predictability (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:59:y:2016:i:c:p:39-50

DOI: 10.1016/j.qref.2015.02.009

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