Yes. We construct a measure of aggregate technology change, controlling for imperfect
competition, varying utilization of capital and labor, and aggregation effects. On impact, when
technology improves, input use falls sharply, and output may fall slightly. With a lag of several years,
inputs return to normal and output rises strongly. These results are inconsistent with frictionless dynamic
general equilibrium models, which generally predict that technology improvements are expansionary, with
inputs and (especially) output rising immediately. However, the results are consistent with plausible
sticky-price models, which predict the results we find: When technology improves, input use generally
falls in the short run, and output itself may also fall.
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Last update: July 19, 2001