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- Title
Did technology shocks cause the 1990-1991 recession?
- Authors
Hansen, Gary D.; Prescott, Edward C.
- Abstract
The recovery from the recession in the U.S. economy has not been as fast as in the model economy. The model economy tends to adjust more quickly than the actual economy to technology shocks. In addition, there are factors other than technology shocks that have real consequences and may have inhibited the recovery. Perhaps changing demographics and life-cycle factors leading to lower savings rates are partly responsible for the slow recovery. Perhaps public-finance shocks are responsible. For example, people may be expecting the effective marginal tax on capital income to be higher in the future. Alternatively, people may be anticipating the institution of investment tax credits that will lower the effective price of new capital and as a result, businesses are deferring investments. Insofar as there are no significant public-finance shocks, this quantitative theoretical exercise leads to forecast reasonably rapid growth for a few quarters as real gross national product converges to the path predicted by the model. In addition, if future technology shocks are of average values, the longer-run prognosis is not so optimistic.
- Subjects
RECESSIONS; TECHNOLOGY &; economics; TECHNOLOGY; PUBLIC finance; BUSINESS cycles; GROSS national product; TAXATION; ECONOMIC recovery
- Publication
American Economic Review, 1993, Vol 83, Issue 2, p280
- ISSN
0002-8282
- Publication type
Article