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Working Paper 2001-020A

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"What Happens When the Technology Growth Trend Changes?: Transition Dynamics, Capital Growth and the "New Economy""
by Michael R. Pakko

The rapid increase in U.S. economic growth during the late 1990s inspired speculation that an acceleration in the rate of technological progress had given rise to an increase in potential output growth. This paper considers the transition dynamics associated with such a change using a general equilibrium framework that incorporates stochastic growth trends. The model suggests that transition dynamics associated with a shift in the technological growth trend can have important implications for macroeconomic growth patterns, particularly when technological change is investment-specific. Simulations of the post-WWII US economy show that the model's internal propagation mechanism is capable of explaining a significant portion of the variation in growth rates over the sample period, particularly for investment, capital accumulation, and employment.

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Category > Monetary Policy/Macroeconomics
Author > Michael R. Pakko