NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Growth, Slowdowns, and Recoveries

Francesco Bianchi, Howard Kung, Gonzalo Morales

NBER Working Paper No. 20725
Issued in December 2014, Revised in January 2017
NBER Program(s):   EFG   ME

We construct and estimate a model that features endogenous growth and technology adoption to study the link between business cycle fluctuations and long-term growth since WWII. The presence of spillover effects from research and development (R&D) imply an endogenous relation between productivity growth and the state of the economy. During the Great Recession, the endogenous component of TFP dropped precipitously, while R&D and long-term growth were not equally affected. The opposite occurred during the 2001 recession, which corresponded to a large decline in R&D. We interpret these results in light of the different forms of financing for investment in physical capital versus R&D. Monetary and fiscal interventions mitigated the drop in real activity and adoption of existing technologies. During the Great Inflation, transitory inflationary shocks led to a persistent productivity slowdown. The growth mechanism induces positive comovement between consumption and investment. Shocks to the marginal efficiency of investment explain the bulk of the low-frequency variation in growth rates.

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Document Object Identifier (DOI): 10.3386/w20725

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