The Solow Residual for Australia: Technology Shocks or Factor Utilization?

Glenn Otto

Economic Inquiry, 1999, vol. 37, issue 1, 136-53

Abstract: This paper presents evidence that implies that fluctuations in the Solow residual for Australia do not solely reflect technology shocks. Recent work suggests that the Solow residual is a noisy measure of technology shocks. One source of noise in the standard measure of the Solow residual is changes in factor utilization. In this paper, a structural vector autoregression model for capacity utilization and the Solow residual is estimated. A transitory shock is identified that accounts for about 30 percent of the short term variation in the Solow residual and virtually 100 percent of the variation in capacity utilization at all horizons. Copyright 1999 by Oxford University Press.

Date: 1999
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