DP709 Productivity Growth and the Structure of the Business Cycle

Author(s):	Gilles Saint-Paul
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.