TY  - JOUR
AU  - Basu,Susanto
AU  - Fernald,John G.
TI  - Aggregate Productivity and the Productivity of Aggregates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5382
PY  - 1995
Y2  - December 1995
UR  - http://www.nber.org/papers/w5382
L1  - http://www.nber.org/papers/w5382.pdf
N1  - Author contact info:
Susanto Basu
Department of Economics
Boston College
140 Commonwealth Avenue
Chestnut Hill, MA 02467
Tel: 617/552-2182
Fax: 617/552-2308
E-Mail: susanto.basu@bc.edu

John Fernald
Research Department, Mail Stop 1130
Federal Reserve Bank of San Francisco
101 Market St
San Francisco, CA 94105
Tel: 415-974-2135
Fax: 815-642-0515
E-Mail: john.fernald@sf.frb.org
AB  - Explanations of procyclical productivity play a key role in a variety of business-cycle models.  Most of these models, however, explain this procyclicality within a representative-firm paradigm. This procedure is misleading.  We decompose aggregate productivity changes into several terms, each of which has an economic interpretation.  However, many of these terms measure composition effects such as reallocations of inputs across productive units.  We apply this decomposition to U.S. data by aggregating from roughly the two-digit level to the private economy.  We find that the compositional terms are significantly procyclical.  Controlling for these terms virtually eliminates the evidence for increasing returns to scale, and implies that input growth is uncorrelated with technology change.
ER  -