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R&D and aggregate fluctuations

Artuç, Erhan and Pourpourides, Panayiotis M. 2014. R&D and aggregate fluctuations. Journal of Economic Dynamics and Control 47 , pp. 54-71. 10.1016/j.jedc.2014.07.006

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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.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HB Economic Theory
Uncontrolled Keywords: Cycles; Technology shocks; Investment-specific shocks; R&D; VAR
Additional Information: Pdf uploaded in accordance with the publisher’s policy at (accessed 26/11/2014)
Publisher: Elsevier
ISSN: 0165-1889
Date of First Compliant Deposit: 30 March 2016
Date of Acceptance: 14 July 2014
Last Modified: 30 Aug 2022 16:52

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