Are Technology Improvements Contractionary?

Susanto Basu, John Fernald () and Miles Kimball

No 10592, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Yes. We construct a measure of aggregate technology change, controlling for varying utilization of capital and labor, non-constant returns and imperfect competition, and aggregation effects. On impact, when technology improves, input use and non-residential investment fall sharply. Output changes little. With a lag of several years, inputs and investment return to normal and output rises strongly. We discuss what models could be consistent with this evidence. For example, standard one-sector real-business-cycle models are not, since they generally predict that technology improvements are expansionary, with inputs and (especially) output rising immediately. However, the evidence is consistent with simple sticky-price models, which predict the results we find: When technology improves, input use and investment demand generally fall in the short run, and output itself may also fall.

JEL-codes: E2 E3 (search for similar items in EconPapers)
Date: 2004-06
New Economics Papers: this item is included in nep-dge
Note: EFG ME PR
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Citations: View citations in EconPapers (133)

Published as Susanto Basu & John G. Fernald & Miles S. Kimball, 2006. "Are Technology Improvements Contractionary?," American Economic Review, American Economic Association, vol. 96(5), pages 1418-1448, December.

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Related works:
Journal Article: Are Technology Improvements Contractionary? (2006)
Working Paper: Are technology improvements contractionary? (2004)
Working Paper: Are Technology Improvements Contractionary? (2002)
Working Paper: Are technology improvements contractionary? (1998)
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