Must-Read: Diego Anzoategui et al.: Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence

Must-Read: Diego Anzoategui et al.: Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence:

We… augment a workhorse New Keynesian DSGE model with an endogenous TFP mechanism that allows for both costly development and adoption of new technologies. We estimate the model and use it to assess the sources of the productivity slowdown. We find that a significant fraction of the post-Great Recession fall in productivity was an endogenous phenomenon. The endogenous productivity mechanism also helps account for the slowdown in productivity prior to the Great Recession, though for this period shocks to the effectiveness of R&D expenditures are critical. Overall, the results are consistent with the view that demand factors have played a role in the slowdown of capacity growth since the onset of the recent crisis. More generally, they provide insight into why recoveries from financial crises may be so slow.