Since at least the mid-2000s, many advanced economies have experienced low productivity growth. This development is often related to declining productivity gains at the technology frontier, which is largely determined by the US. We challenge this explanation by studying the effects of US technology shocks on productivity levels in advanced economies. We find positive but small spillovers of US technology shocks. For many countries, the elasticity of their productivity with respect to a 1% increase in the US technology level is significantly lower than 1. Thus, the recent US productivity slowdown must have had a limited effect on productivity developments in advanced economies. Nevertheless, after 5 years, the degree of productivity spillovers varies across countries. Therefore, we analyze the role of institutions in shaping these results. Our findings suggest that isolated institutional characteristics are not able to explain the observed various spillover degrees.

We reassess the evidence for (or against) a key implication of the basic real business cycle model: that aggregate hours worked increase in response to a positive technology shock. Two novel aspects are the scope (14 OECD countries) and the inclusion of data on both labor supply margins to analyze the key margin of adjustment in aggregate hours. The short-run response of aggregate hours to a positive technology shock is remarkably similar across countries, with an impact fall in 13 out of 14 countries. In contrast, its decomposition into intensive and extensive labor supply margins reveals substantial heterogeneity in labor market dynamics across OECD countries. For instance, movements in the intensive margin are the dominant channel of adjustment in aggregate hours in 6 out of 14 countries of our sample, including France and Japan.

This paper adds to the large body of literature on the effects of technology shocks empirically and theoretically. Using a structural vector error correction model, we first provide evidence that not only hours but also investment decline temporarily following a technology improvement. This result is robust to important data and identification issues addressed in the literature. We then show that the negative response of inputs is consistent with an estimated monetary model in which the presence of strategic complementarity in price setting, in addition to nominal rigidities, lowers the sensitivity of prices to marginal costs, and monetary policy does not fully accommodate the shock.

This paper investigates the international dimension of economic fluctuations and transmission of structural shocks by estimating a structural VAR model for the United States, the euro area, and Japan—the three largest economies—over the post-Bretton Woods period. The main findings are as follows: (1) Supply-side shocks (technology and supply-level shocks) explain most of the fluctuations in cross-country output deviations. (2) Real-demand shocks are the most important source of real-exchange-rate fluctuations. (3) Current account is usually influenced by all types of shocks, with technology shocks playing a stronger role. In particular, technology shocks play a prominent role in the existing global imbalance (the large external deficit of the United States). (4) Technology and supply-level shocks generate opposite-signed correlations between output differential and current account, whereas real and nominal-demand shocks generate opposite-signed correlations between real exchange rate and current account.

We investigate the business cycle effects of imperfect transmission of technology shocks within a basic real business cycle (RBC) model along two dimensions. First, we assume that agents cannot distinguish a temporary increase in productivity growth from a sustained increase in the underlying growth rate of productivity and instead must conduct signal extraction exercises and update beliefs about the source of aggregated shocks. Second, we propose a technology adjustment cost resulting in the slow diffusion of technological innovations into the production process. Both of these impediments to the transmission of technology result in a large initial wealth effect, increasing investment and hours less, relative to the usual RBC model without these frictions. Furthermore, each of these features is capable of producing a decline in hours on impact of the technology shock matching the negative response in hours found in the data by such works as Gali [American Economic Review 89(1), 249–271 (1999)].

Previous research has found that the dynamic response of hours worked to a technology shock crucially depends on whether the hours variable is assumed to be an I(0) or an I(1) variable ex ante. In this paper we employ a multivariate fractionally integrated model that allows us to simultaneously estimate the order of integration of hours worked and its dynamic response to a technology shock. Our evidence lends support to the hypothesis that hours fall in response to a positive technology shock.

We evaluate two leading explanations for inventories, the (S,s) and stockout avoidance motives, examining each within dynamic stochastic general equilibrium environments. We find that the (S,s) model is far more consistent with the cyclical behavior of aggregate inventories in the postwar United States when fluctuations arise from technology shocks, rather than preference shocks, whereas the converse is true for the stockout avoidance model. The (S,s) model succeeds in explaining the average magnitude of inventories in the U.S. economy and in reproducing the cyclical regularities involving inventories and other aggregate series. The stockout avoidance model does not. Even with idiosyncratic risk added to strengthen it, the stockout avoidance motive is insufficient to generate stocks near the data without destroying model performance along other important margins. Moreover, it appears incapable of sustaining inventories alongside capital. These findings suggest a fundamental flaw in reduced-form inventory models where stocks are loosely rationalized by this motive.

This paper analyzes the robustness of the estimate of a positive productivity shock on hours to the presence of a possible unit root in hours. Estimations in levels or in first differences provide opposite conclusions. We rely on an agnostic procedure in which the researcher does not have to choose between a specification in levels or in first differences. We find that a positive productivity shock has a negative impact effect on hours, but the effect is much shorter lived, and disappears after two quarters. The effect becomes positive at business-cycle frequencies, although it is not significant.