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Are Technology Improvements Contractionary?

Susanto Basu, John G. Fernald and Miles S. Kimball
The American Economic Review
Vol. 96, No. 5 (Dec., 2006), pp. 1418-1448
Stable URL: http://www.jstor.org/stable/30034981
Page Count: 31
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Are Technology Improvements Contractionary?
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Abstract

Yes. We construct a measure of aggregate technology change, controlling for aggregation effects, varying utilization of capital and labor, nonconstant returns, and imperfect competition. On impact, when technology improves, input use and nonresidential investment fall sharply. Output changes little. With a lag of several years, inputs and investment return to normal and output rises strongly. The standard one-sector real-business-cycle model is not consistent with this evidence. The evidence is consistent, however, with simple sticky-price models, which predict the results we find: when technology improves, inputs and investment generally fall in the short run, and output itself may also fall.

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