Stochastic Growth in the United States and Euro Area

This paper constructs a two-country stochastic growth model in which neutraland investment-specic technology shocks are nonstationary but cointegrated acrosseconomies. It uses this model to interpret data showing that while real investmenthas grown faster than real consumption in the United States since 1970, the oppositehas been true in the Euro Area. The model, when estimated with these data, revealsthat the EA missed out on the rapid investment-specic technological change enjoyedin the US during the 1990s; the EA, however, experienced faster neutral technologicalprogress while the US economy stagnated during the 1970s....