« Growing and "Using" Balance Sheets | Main | Nationalization »
February 9, 2009
Technological Progress
By Wade Rousse
An economy is analyzed by investigating its inputs (capital and labor) and its output (GDP). The difference between the percentage change in output and that of input is sometimes called the Solow Residual. It is the portion of GDP growth that can’t be explained by the growth in capital and labor. Robert Solow was the first person to illustrate how to calculate the residual.
According to economist Edward Prescott, this unexplained portion of economic growth can be interpreted as a measure of technological progress. Over time, the Solow Residual fluctuates substantially. Prescott argues that these fluctuations display the importance of technological shocks as a source of business cycle volatility.
If this is the case, is there a possibility that history will show it was a technological shock, not a fiscal “stimulus” package, that led us out of the current recession?
Posted by Wade at February 9, 2009 9:57 PM
Trackback Pings
TrackBack URL for this entry:
http://www.chicagofedblogs.org/cgi-bin/mt/mt-t.cgi/40
Comments
Can fiscal spending spur technological change? And maybe the larger question is what spurs technological change?
Posted by: Anonymous at February 11, 2009 5:09 PM
I love reading your blog. I’ve you bookmarked your website in order to check out the latest stuff.
Posted by: Karyl Dalaq at November 3, 2011 12:22 PM
Post a comment
Commenting Policy:
All comments and links posted to FRBC blogs are reviewed. The Federal Reserve reserves the right to protect against spam, off-topic and profane comments and links; any such comments or links will be deleted and the domain address of the poster blocked.