İşletme Fakültesi Araştırma Seminerleri - Finans - Mehmet Yörükoğlu

Speaker: Mehmet Yörükoğlu (Koç University) will present to us his joint work with Daniele Aglio (VU Amsterdam).

Title: The Technological Roots of the Great Moderation

Abstract: This paper explores the connection between the rapid technological change after technological breakthroughs and the subsequent moderation in real and nominal economic activity. By developing a New Keynesian DSGE model that incorporates vintage-technology adoption and learning, the impact of learning on the volatility of economic variables is examined. The process of learning and reorganization during the adoption of new technology moderates economic fluctuations, especially in economies closer to the technological frontier. If the central bank does not account for this learning process when measuring potential output and the output gap, it will respond more aggressively to shocks, further attenuating economic fluctuations. This leads to a flattening of the measured Phillips curve as well. The empirical analysis, which uses cross-country data, supports the main implications of the model. A significant portion of the observed moderation in the sample countries can be explained by an index that proxies a country’s proximity to the technological frontier. As the model suggests, countries nearer to the technological frontier, which require more intensive learning processes, exhibit greater moderation in real and nominal economic activity. Other factors, such as the rise of the service sector, increasing openness to international trade, central bank independence and proactivity, better inventory management etc. turn out to be either insignificant or less important.