I estimate a model in which new technology entails random adjustment needs. Rapid adjustments may cause measured productivity to decline. The slow-downs persist because adjustment is costly, and hence protracted. The model explains both the “steepness” and the “deepness” asymmetry of cycles. Adjustment costs amount to about 14% of output and technological inefficiency to about 28%. Firms abandon technologies long before they are perfected—current practice total factor productivity (TFP) is 20% below its maximal level.
The Review of Economic Studies – Oxford University Press
Published: Jan 1, 2006
Keywords: JEL classification E23 E32 O33 O47
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