In the second half of the 1990s, labor productivity growth rose in the United States and declined in most parts of Europe. This paper documents changes in capital deepening and multi-factor productivity (MFP) growth in information and communication technology (ICT) and non-ICT sectors. We consider MFP growth in the ICT sector as investment-specific productivity (ISP) growth. We perform simulations suggested by the data by adopting a two-country dynamic general equilibrium model with traded and nontraded goods. For ISP, we consider level increases and persistent growth rate increases that are symmetric across countries and allow for costs of adjusting capital-labor ratios that are considerably high in one country because of structural differences. Investment-specific productivity increases generated investment booms unless adjustment costs are excessively high. For MFP, we consider persistent growth rate shocks that are asymmetric. When these MFP shocks affect only traded goods (as commonly assumed), movements in "international" variables are qualitatively similar to those in the data. However, when such shocks also affect nontraded goods (as suggested by the data), movements in some of the variables are not qualitatively similar to those in the data. For the acquisition of plausible results for the growth rate shocks, slow recognition needs to be taken into account.
|Number of pages||39|
|Journal||Seoul Journal of Economics|
|Publication status||Published - 2017|
Bibliographical noteFunding Information:
The views in this paper are solely the responsibility of the authors and do not necessarily reflect the views of the Board of Governors of the Federal Reserve System or any other person associated with the Federal Reserve System. Jinill Kim acknowledges the financial support from the National Research Foundation of Korea (NRF-2013S1A5A2A03044693). The authors of this paper obtained helpful comments from participants in the conference entitled “Dynamic Macroeconomic Theory” and in seminars at the International Finance Division of the Federal Reserve Board and Georgetown University. They also had useful discussions with Susantu Basu, David Bowman, Andrea DeMichelis, Charles Engel, Christopher Erceg, Christopher Gust, Jon Faust, Jaime Marquez, Daniel Sichel, and Jonathan Wright. The authors also take responsibility for remaining errors in the paper.
- Dynamic General equilibrium
- Harrod-Balassa- Samuelson effect
- Nontraded goods
- Technical change
- Technological shocks
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)