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American Economic Review: Vol. 96 No. 5 (December 2006)
AER Volume. 96, Issue 5 | 
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Are Technology Improvements Contractionary?
Article Citation
Basu, Susanto,
John G. Fernald, and
Miles S. Kimball. 2006. "Are Technology Improvements Contractionary?."
American Economic Review,
96(5): 1418-1448.
DOI: 10.1257/aer.96.5.1418
DOI: 10.1257/aer.96.5.1418
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. (JEL E22, E32, O33)
Article Full-Text Access
Full-text Article
Additional Materials
Download Data Set (2.00 MB) | Link to Appendix (207.00 KB)
Authors
Basu, Susanto
Fernald, John G.
Kimball, Miles S.
Fernald, John G.
Kimball, Miles S.
