Learning and Shifts in Long-Run Productivity Growth

By Rochelle M. Edge, Thomas Laubach, John C. Williams. 2004

176 citations recorded by the source corpus.

Shifts in the long-run rate of productivity growth are difficult, in real time, to distinguish from transitory fluctuations. We analyze the evolution of forecasts of long-run productivity growth during the 1970s and 1990s and examine in a dynamic general equilibrium model the consequences of learning on the responses to shifts in the long-run productivity growth rate. We find that an updating rule based on an estimated Kalman filter model using real-time data describes economists' long-run productivity growth forecasts extremely well. We then show that learning has profound implications for the effects of shifts in trend productivity growth and can improve the model's ability to generate responses that resemble historical experience. If immediately recognized, an increase in the long-run growth rate produces a sharp decline in employment and investment, while with learning, a rise in the long-run rate of productivity growth sets off a sustained boom in employment and investment.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/0a1627c8987de2735a8b94c4178442baca78bbbe

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In Economics and Econometrics

Citations in the corpus

Expectations, Learning and Business Cycle Fluctuations (2011, background): “More recently, Edge, Laubach, and Williams (2007) show in a similar model that learning has important effects in the response of the economy to a persistent shift in productivity growth.”
Asset Pricing in Production Economies with Extrapolative Expectations (2015, background): “Since the model is in real and per capita form, all calibration is done with real, per capita empirical counterparts.”
A Theory of Demand Shocks (2009, background): “The closest are Antulio Bomfim (2001) and Rochelle M. Edge et al. (2007), who introduce noisy observations of TFP in standard Real Business Cycle models.”
Has the Fed Been a Failure (2012, unknown): “10 Selgin (1997) presents informal arguments for permitting benign (productivity-driven) deflation, while Edge et al. (2007), Schmidt-Grohé and Uribe (2007), and Entekhabi (2008) offer formal arguments.”
Anticipated Growth and Business Cycles in Matching Models (2009, background): “Productivity process. Edge, Laubach, and Willams (2004) report real-time estimates”
Measuring the Natural Rate of Interest: International Trends and Determinants (2016, background): “Roberts (2001), Edge et al. (2007), and Kahn and Rich (2007) provide evidence of shifts in the trend growth rate of labor productivity in the United States, suggesting one source of persistent movements in the natural rate of interest; 2As discussed below, a further difference between our measure…”
The science of monetary policy: an imperfect knowledge perspective (2018, unknown): “In addition, such models successfully track the evolution of long- and short-term survey forecasts see Branch and Evans (2006), Edge, Laubach, and Williams (2007), Kozicki and Tinsley (2012) and Crump, Eusepi, and Moench (2015).”
Trend Breaks, Long-Run Restrictions, and Contractionary Technology Improvements: Appendix (2007, background): “p Δ or t n . Theory suggests that the sign of the effect of the two growth shocks on hours worked might differ (e.g., Campbell, 1994, Pakko, 2002, and Edge, Laubach, and Williams, 2007 ), implying that the coefficients D11 and D12 must have opposite signs.”
Tracking the Slowdown in Long-Run GDP Growth (2017, background): “Edge, Laubach, and Williams (2007) emphasize the relevance as well as the difficulty of tracking permanent shifts in productivity growth in real time.”