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Uncertainty, Intangible Capital, and Productivity Dynamics

Edoardo Palombo
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Edoardo Palombo: Queen Mary University of London

No 909, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: Following an unparalleled rise in uncertainty over the Great Recession, the US economy has been experiencing anaemic productivity growth. This paper offers a quantitative study on the link between uncertainty and low productivity growth. Firstly, using micro level data I show that uncertainty accounts for half of the drop in intangible capital stock during the Great Recession. Secondly, to investigate the effect of uncertainty on productivity growth dynamics, I present a novel general equilibrium endogenous growth model with heterogeneous firms that undertake intangible capital investment subject to non-convex costs and time-varying uncertainty. I show that uncertainty can generate slow recoveries and a persistent slowdown in productivity growth when accounting for the empirical discrepancy between the realised and expected changes to the second-moment of fundamentals.

Keywords: Uncertainty; R&D; Innovation; Productivity; Great Recession; Intangible Capital; Slow Recoveries (search for similar items in EconPapers)
JEL-codes: O40 O41 O51 (search for similar items in EconPapers)
Date: 2020-06-25
New Economics Papers: this item is included in nep-dge, nep-eff, nep-fdg, nep-ino, nep-mac and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:909

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