Technological Progress, Investment Frictions and Business Cycle: New Insights from a Neoclassical Growth Model

Michael Donadelli, Vahid Mojtahed (v.mojtahed@icloud.com) and Antonio Paradiso (antonio.paradiso@unive.it)

No 15119, Working Papers LuissLab from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: This paper examines whether there is direct link between investment frictions and technological progress. An augmented version of a standard stochastic Solow model is presented. In this novel version the TFP is a function of a set of “ad hoc” variables in deviation from their equilibrium trend: (i) relative price of investment goods with respect to consumption goods (i.e. investment frictions); (ii) human capital index and (iii) trade openness. Empirical results show that investment frictions have an important role in influencing productivity growth. This finding may help in solving an important puzzle raised by the recent business cycle accounting literature, which points out that frictions have a marginal role in driving business cycles. The continuous fluctuations around the long-run trend of exogenous variables entering as driving forces in the technological progress implies that productivity shocks are state dependent. In other words, the true effect on the stock of knowledge and output depends on the exogenous variables’ cyclical phase. This provides novel, realistic and country-specific policy implications.

Keywords: technological progress; macroeconomic fluctuations; investment frictions; trade openness; education (search for similar items in EconPapers)
JEL-codes: C32 E32 O47 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-gro and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.luiss.it/RePEc/pdf/lleewp/15119.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lui:lleewp:15119

Access Statistics for this paper

More papers in Working Papers LuissLab from Dipartimento di Economia e Finanza, LUISS Guido Carli Contact information at EDIRC.
Bibliographic data for series maintained by Giovanna Vallanti (economiaefinanza@luiss.it this e-mail address is bad, please contact repec@repec.org).