TY  - JOUR
AU  - Ramey,Garey
AU  - Ramey,Valerie A.
TI  - Technology Commitment and the Cost of Economic Fluctuations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3755
PY  - 1991
Y2  - June 1991
UR  - http://www.nber.org/papers/w3755
L1  - http://www.nber.org/papers/w3755.pdf
N1  - Author contact info:
Garey Ramey
Department of Economics, 0508
University of California, San Diego
La Jolla, CA   92093-0508
Tel: 619/534-5721;  gramey@weber.ucsd.edu
E-Mail: gramey@ucsd.edu

Valerie A. Ramey
Department of Economics, 0508
University of California, San Diego
9500 Gilman Drive
La Jolla, CA 92093-0508
Tel: 858/534-2388
Fax: 858/534-7040
E-Mail: VRAMEY@UCSD.EDU
AB  - When firms must make technology commitments, economic fluctuations impose costs in the form of ex post inefficiency in production technology. We present a general equilibrium model in which, due to the presence of technology commitment, greater volatility of productivity shocks leads to lower mean output. When learning-by-doing is incorporated, mean output becomes permanently lower as a consequence of higher volatility. The negative and persistent relationship between mean and variance of output implied by our model is strongly verified by the data. We estimate that observed volatility has imposed a cost amounting to almost two percentage points of U.S. GNP growth.
ER  -