DP709 Productivity Growth and the Structure of the Business Cycle
|Publication Date:||October 1992|
|Keyword(s):||Business Cycles, Growth, Productivity, Research and Development|
|JEL(s):||D21, D24, D92, E22, E23|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=709|
Over recent years `opportunity cost' (OC) models of growth have been constructed which suggest that firms take advantage of the possibility of intertemporal subsitution in order to engage in productivity-improving activities during recessions. This paper tests whether this argument is correct, using a semi-structural vector autoregression to distinguish the trend from the cycle. The results are mildly supportive of the OC theory. Demand shocks tend to have a negative impact on productivity, both in the short and long run, and the short-run impact is stronger in those countries where fluctuations are more transitory. There is no evidence, however, of a significant R&D response to demand shocks.