Measures of Technology and the Short-run Response to Technology Shocks

Technology growth is estimated on data for Swedish two-digit manufacturing industries. I apply and evaluate two different approaches to control for varying factor utilization developed by Basu and Kimball (1997) and Burnside, Eichenbaum and Rebelo (1995). I also propose a generalization of the latter specification. The cyclical behavior of the resulting technology measure is studied and the responses of hours and output to a technology shock are estimated. The main finding is that a positive technology shock has, on impact, a contractionary effect on hours and a non-expansionary effect on output. This finding is inconsistent with the predictions of the canonical real business cycle model. Copyright The editors of the "Scandinavian Journal of Economics", 2003 .