Technology Commitment and the Cost of Economic Fluctuations / Garey Ramey, Valerie A. Ramey.

Format:

Book

Author/Creator:

Ramey, Garey.

Contributor:

National Bureau of Economic Research.

Ramey, Valerie A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3755.

NBER working paper series no. w3755

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1991.

Summary:

When firms must make technology commitments, economic fluctuations impose costs in the form of ex post inefficiency in production technology. We present a general equilibrium model in which, due to the presence of technology commitment, greater volatility of productivity shocks leads to lower mean output. When learning-by-doing is incorporated, mean output becomes permanently lower as a consequence of higher volatility. The negative and persistent relationship between mean and variance of output implied by our model is strongly verified by the data. We estimate that observed volatility has imposed a cost amounting to almost two percentage points of U.S. GNP growth.

Notes:

Print version record

June 1991.