 Does the Solow Residual Actually Measure Changes in Technology?James Hartley Review of Political Economy, 2000, vol. 12, issue 1, 27-44 Abstract: Real business cycle models purport to explain the business cycle as the result of technological change. This paper shows that the commonly used measure of technological change, the Solow residual, does not capture changes in the technology of the production function. The model used in this paper is within the framework of models described in Hansen & Sargent (1990, 1991). Technological change is modeled as a change in the value of one of the 'deep' technology parameters in the production function. The Solow residual is incapable of capturing the effects of this sort of technological change. There is no consistent relationship between the direction and size of a technological change and the sign and size of the Solow residual. The Solow residual often moves in the wrong direction, e.g. a negative technological shock causes a positive residual. Even when the Solow residual has the right sign, its size is not consistent with the size of the technological shock, e.g. a larger positive change in technology does not necessarily cause a larger positive Solow residual. Date: 2000 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:revpoe:v:12:y:2000:i:1:p:27-44 Ordering information: This journal article can be ordered from Access Statistics for this article Review of Political Economy is currently edited by Steve Pressman and Louis-Philippe Rochon More articles in Review of Political Economy from Taylor & Francis Journals |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.