Growth, Slowdowns, and Recoveries


Bianchi, F; Kung, H


We construct and estimate a model that features endogenous growth and technology diffusion. The spillover effects from research and development provide a link between business cycle fluctuations and long-term growth. Therefore, productivity growth is related to the state of the economy. Shocks to the marginal efficiency of investment explain the bulk of the low-frequency variation in growth rates. Transitory inflationary shocks lead to persistent declines in economic growth. During the Great Recession, technology diffusion dropped sharply, while long-term growth was not significantly affected. The opposite occurred during the 2001 recession. The growth mechanism induces positive comovement between consumption and investment.


Bianchi, F., and H. Kung. “Growth, Slowdowns, and Recoveries.” Economic Research Initiatives at Duke (Erid), November 1, 2014.
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