R&D and Aggregate Fluctuations

Empirical observations raise interesting questions regarding the sources of the excessive volatility in the R&D sector as well as the nature of the relation between the sector and aggregate fluctuations. Using US data for the period 1959–2007, we identify sectoral technology and capital investment-specific shocks by employing a Vector Autoregression. The identifying assumptions are motivated by a two-sector dynamic general equilibrium model. Controlling for real and nominal factors, we find that capital investment-specific shocks explain 70 percent of fluctuations of R&D investment, while R&D technology shocks explain 30 percent of the variation of aggregate output, net of R&D investment. Technology shocks jointly explain almost all the variation of output in the R&D sector and 78 percent of the variation of output in the rest of the economy. They also constitute the main factor of the procyclicality of R&D investment.

Bibliographic Details

Main Authors:	Artuc, Erhan, Pourpourides, Panayiotis M.
Format:	Journal Article biblioteca
Language:	en_US
Published:	Elsevier 2014-08-01
Subjects:	Cycles, Technology shocks, Business cycles, Investment-specific shocks, R&D, VAR,
Online Access:	http://hdl.handle.net/10986/21412
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