Shifting Expectations about Technology Growth as a Propagation Mechanism

Growth rates of macro aggregates are more persistent than technology growth in data. We develop a theory that accounts for this observation. In the model there are two types of shocks affecting the growth rate of technology, one transitory and another persistent, but agents do not observe them separately and form a belief about their relative contribution. The process of belief updating serves as a propagation mechanism enabling the model to generate movements in macro growth rates more persistent than that of the driving force