Growth, Slowdowns, and Recoveries
AbstractWe 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.