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Growth, Slowdowns, and Recoveries

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  • Howard Kung

    (London Business School)

  • Francesco Bianchi

    (Cornell University)

Abstract

We construct and estimate a model that features endogenous growth and technology diffusion. The spillover effects from research and development provide a link between business cycle fluctuations and long-term growth. Therefore, productivity growth is related to the state of the economy. Shocks to the marginal efficiency of investment explain the bulk of the low-frequency variation in growth rates. Transitory inflationary shocks lead to persistent declines in economic growth. During the Great Recession, technology diffusion dropped sharply, while long-term growth was not significantly affected. The opposite occurred during the 2001 recession. The growth mechanism induces positive comovement between consumption and investment.

Suggested Citation

  • Howard Kung & Francesco Bianchi, 2015. "Growth, Slowdowns, and Recoveries," 2015 Meeting Papers 1073, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:1073
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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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