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What Happens when Technology Improves?

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  • John Gregg Fernald

    (Federal Reserve Bank of San Francisco)

Abstract

This paper extends the literature that explores the dynamic response of the economy to technology shocks. The shocks used are “direct” measures of aggregate technology, measured as Solow residuals (aka , total factor productivity, or TFP) with an adjustment for variations in labor effort and capital’s workweek. In addition, motivated by the growing body of literature on investment-specific technical change, the quarterly series is also decomposed into utilization-adjusted investment TFP and consumption TFP. As in Gali (1999) and Basu, Fernald, and Kimball (2006), hours worked fall for several periods following an improvement in technology.

Suggested Citation

  • John Gregg Fernald, 2011. "What Happens when Technology Improves?," 2011 Meeting Papers 487, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:487
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    References listed on IDEAS

    as
    1. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    2. Jonas D. M. Fisher, 2006. "The Dynamic Effects of Neutral and Investment-Specific Technology Shocks," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 413-451, June.
    3. Susanto Basu & John Fernald, 2001. "Why Is Productivity Procyclical? Why Do We Care?," NBER Chapters, in: New Developments in Productivity Analysis, pages 225-302, National Bureau of Economic Research, Inc.
    4. Fernald, John G., 2007. "Trend breaks, long-run restrictions, and contractionary technology improvements," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2467-2485, November.
    5. Charles R. Hulten, 1978. "Growth Accounting with Intermediate Inputs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 45(3), pages 511-518.
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